Ireland is not heading into a recession, according to an economic modelling exercise conducted by the Irish Fiscal Advisory Council and published in a new working paper by the economic watchdog.

The model, which was successfully backtested to predict the global financial crisis and the dot.com bust, currently suggests “a very low probability” of recession in Ireland, according to the paper’s authors, Eddie Casey and Niall Conroy.

The paper, called ‘Estimating Ireland’s probability of recession’, assesses several potential domestic and international variables, from news articles and Google searches to more technical data such as bond yield spreads and employment expectations.

Based on how these indicators performed when measured against known recessions going back decades, they turned out to have strong predictive power. And now they’re saying Ireland appears to be in the clear as the data has not deteriorated substantially.

The paper is the latest addition to a growing consensus that Ireland’s economy will avoid a downturn this year, after both Davy and Ibec upgraded their forecasts in the last month.

The key indicator in the research is the US term spread, also known as the yield curve, which measures the difference between two-year and 10-year Treasury yields. When long-term yields are lower than short-term, there is a risk of recession.

But Mr Casey, the Fiscal Council’s chief economist, cautioned that the model is not “a crystal ball”.

“There are many risks not captured and indicators that proved useful in the past may not be so useful today,” he wrote in an introduction to the research. “Geopolitical risks, for example, are important but are beyond the scope of what is included.”

Meanwhile, Irish manufacturers had their first rise in new orders in nine months in another sign the economy is entering a growth phase rather than a downturn.

The AIB manufacturing PMI hit 51.3 in February, it’s the second month of expansion after a dip at the end of last year.

“A key factor behind the improvement in Irish manufacturing was the first rise in new orders since last May, albeit a modest one and amid continuing weakness in exports orders,” AIB said. 

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