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December 18, 2012 1:31 pm
Dublin should delay imposing further austerity measures even if it misses its growth targets next year amid “significant risks” to the country’s economic recovery, the International Monetary Fund has said.
The Fund issued the statement shortly before Ireland’s national statistics office published a mixed set of economic statistics on Tuesday showing Irish economic output rose 0.2 per cent in the third quarter.
However, gross national product, often seen as a better measure of Irish economic activity because it strips out the dividends and profits repatriated by local subsidiaries of foreign companies, fell 0.4 per cent.
The IMF’s proposal to delay additional cutbacks if Irish growth stalls puts it on a divergent path from the European Commission and European Central Bank, which continue to emphasise rigid adherence to the bailout programme.
David Lipton, IMF first deputy managing director and acting chairman, said the Irish authorities had consistently maintained strong policy implementation and met all targets under its programme. But he warned there were significant risks to Ireland’s economic recovery due to weakening of growth in Ireland’s trading partners and a depressed domestic economy due to high private debts, continuing fiscal consolidation and banks limited ability to lend.
“If next year’s growth were to disappoint, any additional fiscal consolidation should be deferred to 2015 to protect the recovery,” said Mr Lipton in a statement issued following disbursement of €0.89bn bailout funds to Ireland.
The IMF also reiterated a call for European authorities to follow through with promises to provide Ireland with a deal on its €64bn banking debt in order to help it exit its international bailout in 2014.
“Ireland’s market access would also be greatly enhanced by forceful delivery of European pledges to improve programme sustainability, especially by breaking the vicious circle between the Irish sovereign and the banks,” it said.
Dublin has been labelled “the poster child for austerity” for its ability to implement €28.5bn in tax rises and spending cuts while continuing to grow its economy and maintaining social cohesion. But the wider slowdown across the Eurozone is beginning to undermine its fragile economic recovery.
Dublin has forecast its economy will expand 0.9 per cent in 2012 and 1.5 per cent in 2013. A failure to meet these growth targets may cause investors to doubt the country’s long-term prospects as its gross debt levels are scheduled to peak above 120 per cent of gross domestic product next year- a level considered unsustainable by many economists.
Figures published by Ireland’s national statistics office on Tuesday show gross domestic product rose 0.2 per cent in the third quarter of 2012, compared with the second quarter. The office revised up second-quarter growth figures from to 0.4 per cent of GDP in a move that economists said should put Ireland on track to meet its growth forecasts.
The decline in output in the first quarter was also less than previously reported at -0.5 per cent, rather than -0.7 per cent. However, gross national product fell 0.4 per cent in the third quarter, compared with the second quarter.
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