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September 20, 2012 2:59 pm
Ireland’s fragile economic recovery has ground to a halt with new figures showing the economy did not grow in the second quarter, raising fresh questions over Dublin’s ability to exit its international bailout.
Gross domestic product for the three months to the end of June was unchanged on the previous quarter, Ireland’s national statistics office said on Thursday. This follows a 0.7 per cent dip in growth in the first quarter of the year as consumer, capital and government spending continued to hit the domestic economy.
The disappointing lack of economic growth reflected how Ireland’s recovery remained exceptionally shallow, with GDP now just 2.6 per cent above its trough nine quarters ago, said Dermot O’Leary, economist with Goodbody Stockbrokers.
“There have been opposing drivers of the Irish economy, with domestic demand continuing to contract and net exports contributing to growth,” he said.
Ireland returned to economic growth last year for the first time since 2007 after its property crash and banking crisis led to an EU and International Monetary Fund bailout in November 2010.
Dublin has been held up as the “poster boy for austerity” for its ability to implement deep cuts while continuing to meet its bailout commitments. This helped it return to international markets in the summer.
But the eurozone debt crisis is weighing on its export-led recovery and raising question marks over its ability to meet budget deficit targets in its programme and control its debt, which is forecast to peak close to 120 per cent of GDP in 2013.
The Irish economy remains weak and will face a challenge to meet the government’s growth target of 2.2 per cent of GDP in 2013, said David Duffy, economist with the Dublin-based Economic and Social Research Institute.
Despite the poor growth figures, in the second quarter Dublin recorded its highest current account surplus (€3.2bn) since 1981, with exports increasing on the same period last year and imports falling. Merchandise exports increased by €274m to €22bn compared with the second quarter last year, and service exports grew strongly by €2.35bn to €22.8bn. The bulk of the increase in service exports was generated through increased business and computer services exports, reflecting Ireland’s position as a hub for internet companies such as Google.
However, overall exports fell 0.5 per cent in the second quarter when compared with the first quarter of 2012, likely reflecting a slowdown in European markets. This represented the first quarterly fall in exports since the fourth quarter of 2010.
Imports fell 5.2 per cent in the second quarter when compared with the first three months of the year.
Gross national product grew 4.3 per cent in the three months to end-June. But the statistics office said the increase should be treated with caution as it represented profit inflows into Ireland from overseas subsidiaries of companies that had set up headquarters in the country.
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