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June 27, 2013 1:22 pm
Ireland has plunged back into recession amid a slump in net exports and a fall in personal consumption, raising question marks over an economy tipped as the eurozone’s best chance of a bailout success story.
New figures published by Ireland’s national statistics agency on Thursday show gross domestic product fell 0.6 per cent in the first quarter of 2013, compared with the previous three months. The agency also revised down previous growth estimates, signalling that Ireland’s economy has shrunk for the past three consecutive quarters.
The economy shrank by 0.2 per cent in the final quarter of 2012. Two consecutive quarters of negative growth define a “technical” recession.
The bad news comes after shocking revelations this week about Irish bankers’ attitudes to the billions of taxpayers’ money used to rescue the banks at the start of Ireland’s financial crisis.
“The economy is still ‘flatlining’ and net exports are a concern,” said Michael Connolly, a senior statistician at the agency.
The agency also revised down Ireland’s annual growth rate in 2012 to 0.2 per cent of GDP, from its previous estimate of 0.9 per cent.
Alan Barrett, an economist with Ireland’s Fiscal Advisory Council, said the figures were disappointing, particularly as the fall in GDP extended over three quarters.
“Ireland is suffering because the eurozone economy is poor. Unless there is some recovery in Europe then Ireland won’t enjoy a sustainable recovery,” he said.
Exports of goods and services fell by 3.2 per cent in the first quarter of 2013 – an extraordinarily weak performance for an economy that has enjoyed an export-led recovery since its economic crisis and international bailout in 2010.
Goods exports have fallen sharply, which is due in part to a number of pharmaceutical products coming off patent over the past 12 months. Pharmaceutical exports account for about 60 per cent of Ireland’s goods exports, said the agency.
The domestic economy also remains weak amid a mortgage crisis and high unemployment. Consumer spending fell 3 per cent in the first three months of the years, compared with the fourth quarter of 2012.
“On the basis of the first-quarter figures, it is hard to see the economy posting positive growth this year, which in turn will have negative implications for Ireland’s budgetary position,” said Alan McQuaid of Dublin-based Merrion Stockbrokers.
Ireland’s department of finance is forecasting 2.5 per cent GDP growth in 2013. A failure to reach this target could raise questions of Ireland’s debt sustainability as it seeks to exit its bailout in December. Ireland’s debt to GDP ratio is expected to peak at 123 per cent this year.
Economists had hoped that a dip in unemployment to 13.7 per cent in the first three months of 2013, down from 15.1 per cent in the first quarter of last year, suggested the Irish economy was stabilising. But the figures published by Ireland’s statistics agency on Thursday show most economic indicators have worsened over recent months.
One of the few positives was a 2.9 per cent increase in gross national product, a narrower measure of economic output than GDP, in the first quarter of 2013. But this measure of economic output in Ireland is typically distorted by “redomiciled Plcs”, companies that relocate their headquarters to Ireland for tax purposes without investing in operations.
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