Irish economy shrinks 1.9 pct in Q3 as cuts bite
DUBLIN (AP) — Ireland's economy shrank by 1.9 percent in the third quarter, an unexpectedly large drop that raises doubts about the country's painful austerity efforts.
Friday's report from the Central Statistics Office dashed forecasts of only a minor reduction. Ireland is midway through a seven-year deficit-fighting program that requires at least modest growth to succeed.
The report said gross domestic product fell 1.9 percent in the July-September period — the worst quarterly fall recorded among the 17 nations of the eurozone. Economists had expected a drop of only around 0.5 percent following two quarters of gains.
The third-quarter drop means Irish growth is averaging just 0.7 percent so far this year. Economists said they doubted that the economy would rebound sufficiently in the current quarter, if at all, to meet the government's modest target of 1 percent GDP growth.
Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, said Ireland would "do well" to reach 0.5 percent growth this year "given the deteriorating world economic backdrop and the fall-off in global demand."
Fergal O'Brien, chief economist at the Irish Business and Employers Confederation that represents 7,500 companies, noted that Irish exports were still growing, while much of the quarterly fall was caused by a 20.9 percent drop in business investment in new equipment. "It is likely that some firms are slowing investment decisions again due to the deteriorating international outlook," he said.
But David Begg, general secretary of the Irish Congress of Trade Unions representing about a third of Ireland's 2 million-strong work force, said the government's austerity program was too severe and "making recovery almost impossible."
"No economy can sustain the sort of ongoing damage that is being inflicted on us," Begg said. "The latest figures show, yet again, a big drop in domestic demand while retailers warn of more closures in the new year. We need growth and we need it quickly."
All sides agree that Ireland cannot hope to meet its goal of reducing its 2015 deficit to 3 percent of GDP — the central objective of its year-old international bailout agreement — if its economy doesn't grow sufficiently.
Ireland's latest austerity plans published last month are based on the presumption that Irish GDP will grow 1.6 percent in 2012 and 2.8 percent annually in 2013, 2014 and 2015.
Gross national product, meanwhile, fell 2.2 percent versus expectations of a flat performance. Many economists consider GNP a better barometer of Irish economic fortunes because it excludes the largely expatriated profits of nearly 1,000 foreign companies based in Ireland.
Ireland this year is spending euro57 billion — including more than euro10 billion in aid to its five nationalized banks — but collecting barely euro34 billion in taxes.
To try to reduce the gap, the government is imposing euro2.2 billion in 2012 spending cuts and raising euro1 billion in extra taxes, including a 2-point hike in sales tax to 23 percent and a new national property tax.
The European Union and International Monetary Fund last year extended a potential euro67.5 billion line of credit to Ireland on condition that the country slash its deficits to the eurozone's 3 percent limit by 2015. The Irish government already has spent around half of that cash and hopes to return to borrowing from bond markets in 2013.
Ireland posted an EU-record 2010 deficit of 32 percent of GDP but hopes to reduce it to 10.1 percent this year.
Ireland's GDP and GNP, http://bit.ly/vTKjuI