* Ireland's Q3 GDP falls 1.9 pct Q/Q vs -0.5 pct forecast
* Falls from euro zone's second-best performer to worst
* Weaker global outlook seen hurting growth prospects
* Weak growth could undermine Irish debt sustainability
By Padraic Halpin and Conor Humphries
DUBLIN, Dec 16 Ireland's economy
contracted at its fastest pace in over two years in the third
quarter after a global slowdown hit export growth, casting doubt
over Dublin's ability to transform itself into the euro zone's
Gross domestic product slumped 1.9 percent on a seasonally
adjusted basis, compared to a Reuters poll forecast of a 0.5
percent fall, making Ireland the worst euro zone performer in
the third quarter apart from Greece, which no longer publishes
seasonally adjusted figures.
In the second quarter, Ireland had been the second-best in
class behind Estonia.
"Ireland's third quarter GDP figures rather spoil its
emerging image as a 'poster boy' for other debt-laden peripheral
euro zone economies," said Jonathan Loynes, Chief European
Economist at Capital Economics.
"The figures ... put something of a dent in hopes that
Ireland was starting to reap the rewards of its economic reforms
and austerity measures," he said. "Ireland's future prospects
within the single currency are far from secure."
Ireland's quarterly GDP data are notoriously volatile due to
the inclusion of the earnings of Irish-based multinationals.
But a slowdown in exports is a worrying development for
Prime Minister Enda Kenny, who is relying on trade to prop up a
domestic economy battered for years by austerity measures and to
enable the country to emerge from an EU-IMF bailout in 2013.
Analysts said Ireland should still achieve full-year GDP
growth this year, the first since 2007, but below the 1 percent
forecast by the government.
EUROPEAN ROLE MODEL
Held up as a role model for other indebted euro zone
nations, Ireland is now in danger of losing the battle to repair
its precarious debt position and return to bond markets in
Europe's failure to solve its sovereign debt crisis and a
ramp-up in austerity measures threatening economic growth across
the currency bloc is darkening the outlook for Ireland.
"Ireland's ability to generate the growth rates necessary to
guarantee the sustainability of its public debt and then regain
sufficient confidence to be able to return to the financial
markets for funding will obviously depend on some sort of
lasting resolution to the euro zone debt crisis," said Sonia
Pangusion of IHS Global Insight.
"From a debt sustainability point of view, growth is the
name of the game."
Ireland's official creditors at the European Union and the
International Monetary Fund expect GDP growth of around 1
percent next year and have warned it could deteriorate in the
months ahead if its trading partners slide into recession.
If growth falls behind targets, the government would have to
sharpen austerity measures futher to meet its IMF-EU deficit
targets, risking a backlash against Kenny's government.
But in a positive sign for Dublin, the IMF advised the
government on Thursday against increasing the amount of fiscal
adjustment if growth weakens for fear of further depressing
EXPORT GROWTH SLOWING
Friday's data shows exports are struggling to compensate for
a domestic economy drubbed by an unprecedented housing crash and
prolonged austerity measures, including 3.8 billion euros ($5
billion) of fiscal adjustment pencilled in for next year.
Exports grew, but at 0.8 percent the improvement was the
weakest quarterly performance in nearly two years. The current
account surplus came in at 850 million euros compared to a
surplus of 1.18 billion euros in the same period last year.
"The big risk next year is clearly the euro area slowdown
and how that effects exports," said Conall Mac Coille, chief
economist at Davy Stockbrokers.
Gross National Product (GNP), seen by some economists as a
more accurate indicator of the state of the economy because it
strips out the earnings of Irish-based multinationals, was down
2.2 percent in July-September, well below analysts' expectations
of a flat performance.
Consumer spending dropped 1.3 percent in the third quarter,
while capital investment sank nearly 21 percent.