Ireland’s economy contracted faster in the third quarter than at any time over the past two years, calling into question its ability to recover while implementing harsh austerity measures.
Gross domestic product fell by 1.9 per cent from July to September compared with the previous quarter, due mainly to falling personal consumption and a steep decline in investment as the euro zone crisis deepened.
Figures published by Ireland’s national statistics office show Ireland experienced the worst third-quarter economic performance in the euro zone. This constitutes a big turnaround from the second quarter of this year when Ireland was the second-best performer behind Estonia.
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 by 2.2 per cent in the third quarter.
The unexpectedly weak economic data prompted trade unions to call for a change in the government’s policy of implementing austerity measures.
“Current policies are making recovery almost impossible. No economy can sustain the sort of ongoing damage that is being inflicted on us. The latest figures show, yet again, a big drop in domestic demand while retailers warn of more closures in the new year,” said David Begg, general secretary of the Irish Congress of Trade Unions.
Ireland’s return to growth in the first half of 2011 after three years of recession has prompted European leaders to position Ireland as an example of a country that can continue to grow while implementing austerity measures. But the euro zone crisis threatens to knock the country off its recovery course and make it more difficult to meet the targets in its European Union and International Monetary Fund bailout.
Jonathan Lyons, economist with Capital Economics, said the figures rather spoil Ireland’s emerging image as a “poster boy” for other debt-laden peripheral euro zone economies. “With borrowing costs way higher than Italy, Ireland’s future prospects within the single currency are far from secure,” he said.
Alan McQuaid, economist with Bloxham Stockbrokers, said the quarterly figures were “extremely disappointing” and would probably lead to his 2011 growth forecasts being halved to 0.5 per cent, down from 1.1 per cent. However, he said Irish quarterly GDP figures tend to be erratic due to the volatile and erratic nature of industrial production in Ireland, which is a factor of its large multinational sector.
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