Ireland emerged from its second recession in five years in the second quarter but tepid growth left official forecasts for the year in doubt and may dash government hopes of easing up on austerity.
Ireland is set to become the first country to exit an EU/IMF bailout later this year after returning to debt markets but its economy still needs to start growing by more than 2 per cent from next year on to help make its national debt sustainable.
It must also keep up a relentless austerity drive to trim Europe’s highest budget deficit, although Finance Minister Michael Noonan had hoped that a positive reading would allow him to introduce a less stringent budget than planned next month.
The junior coalition Labour party has called for austerity imposed by Ireland’s bailout lenders to be reined in, but growth of just 0.4 per cent in the three months to June and a decline of 1.2 per cent year-on-year will leave Noonan little room to do so.
“Today’s release doesn’t mean that much for the overall size of the budgetary adjustment,” said Conall MacCoille, chief economist at Davy Stockbrokers.
“On balance it’s good news, but growth this year might be a little weaker than previously thought. We will be downgrading our 2013 GDP forecast, but we still expect the economy to expand by around 2 per cent in 2014.”
Ireland’s government forecast in April that the economy would grow by 1.3 per cent for 2013 as a whole. Economists polled by Reuters last month predicted growth of just 0.5 per cent.
Ireland’s emergence from a short recession was slower than anticipated, economists polled by Reuters having forecast gross domestic product would bounce back from three quarters of decline with growth of 0.8 per cent in the second quarter.
After Ireland’s trade-dependent economy was hit hard by the downturn in Europe, exports rose by 4.3 per cent compared with the first quarter, while consumer spending rose 0.7 per cent after both suffered big falls in the previous three months.
With Ireland’s jobless rate at a three-year low, economies in major trading partners picking up and indicators pointing towards a more positive third quarter for the domestic economy, most economists expect growth to accelerate in the second half.