Ireland in recession as bailout exit approaches
Ireland’s economy slid into recession late last year and continued to contract sharply in early this year, new and revised figures showed on Thursday, just months before it is due to exit its EU/IMF bailout programme.
Gross domestic product shrank 0.6 per cent in the first quarter of this year from the previous three months, confounding analysts’ expectations of 0.3 per cent growth - a shock reading that shows the euro zone member is recovering from financial crisis much more slowly than previously thought.
Revised data also showed a quarterly contraction of 0.2 per cent in the fourth quarter of last year, meaning Ireland’s economy has shrunk for three successive quarters and is in its first recession since 2009.
The Irish government is targeting growth of 1.3 per cent this year and while Finance Minister Michael Noonan said he would not tie himself to any particular number when asked if that forecast would have to be revised, he said that other parts of the public finances were holding up better.
“They’re certainly disappointing but it’s one set of statistics,” he said.
“We built the budget on 1.3 (per cent growth) and the tax flows for the first half of the year are consistent with our budgetary targeting. We’ll be slightly ahead of target, we think, for June.”
Ireland has been one of the few euro zone countries to have eked out mild growth as the currency bloc’s debt crisis has unfolded, despite harsh spending cuts and tax hikes imposed to help bring down one of Europe’s highest budget deficits.
Though Irish people have not protested against austerity as angrily as those in other indebted states such as Greece and Spain, many have endured salary cuts of up to a fifth and big tax rises. Unemployment has more than tripled, to 14 per cent.
The second euro zone country to be rescued, in November 2010, it is due to complete its bailout later this year and has made a limited return to bond markets, although yields on its debt have recently started to rise again.
Analysts say the country has enough cash to cover most of its funding needs through next year, however, and should exit the aid deal on schedule, providing the European Union with a badly-needed success story for austerity.
The poor economic data rounds off a bad week for Ireland, where public anger is growing over leaked tapes of bankers laughing about a government rescue of the financial system that led to the bailout and years of austerity.
Three years on, a split in society is becoming clearer - property is selling fast in upmarket areas of Dublin, while shells of unfinished houses litter ghost estates and suburbs around the country. Overall, house prices have fallen by half.
“Dublin is booming, but I go to my home town and most of the shops are closed down,” said human resources worker Lynn, who did not want to give her second name. “It’s heartbreaking. Here it’s completely different. I can’t find properties to rent for people who are relocating.”
Thursday’s data showed the economy grew by just 0.2 per cent last year, rather than the 0.9 per cent initially thought, and an export-led recovery stalled in the second half of last year, largely because of the slowdown in the rest of the euro zone.
Economic growth for 2011 was, however, revised up to 2.2 per cent from 1.4 per cent previously.
But returning to that level of growth this year now looks unrealistic after personal consumption fell 3.0 per cent in the first quarter, its sharpest drop in four years. Exports of goods and services had an even steeper decline of 3.2 per cent, the most since Ireland’s economic crisis began.
The prospect of easing up a little on austerity, which the government has been considering given leeway offered by a deal which eased the terms of debt repayment, now looks trickier.
Noonan, who has said he would rather use the slack to invest in capital projects, said on Thursday that it was still too soon to say how the leeway would be used and that he would make a call in September, a month before he presents his next budget.
“It’s very fragile and it probably means we have to be very careful about the scale of adjustment in budget next year,” said KBC Ireland economist Austin Hughes, who revised down his growth for GDP this year to 0.7 per cent from 1 per cent previously.