The Republic’s economy had waned in the second quarter after exiting recession in the first three months of the year.

Figures released by the Central Statistics Office also show Ireland’s GNP rose by 1.1%, the first time since the fourth quarter of 2007 both measures registered a quarterly increase.

The industry sector and exports led the economy’s recovery, with the growth in net exports outweighing the fall in domestic demand. Meanwhile agriculture was the only other sector to expand quarter-on-quarter.

However, compared with the third quarter of 2009, Ireland’s GDP decreased by 0.5% while GNP fell by 1.6%.

Ben May, European economist at Capital Economics, says export-led growth may help Ireland’s recovery next year, but warned domestic spending has remained weak.

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“The 0.5% drop in household spending was the sharpest quarterly fall since Q4 2009,” May says.

“Meanwhile, investment plunged by 18.1%, more than reversing the previous quarter’s rise.

“Given the worst of the recent financial market troubles took place in the final quarter of the year, there is clearly a risk that household spending and investment suffer further sharp falls in Q4.

“In all, one or two encouraging signs here, but nothing to alter our view that Ireland looks set for another very tough year in 2011.”