September 1, 2010 / 11:33 AM / 7 years ago

UPDATE 3-Irish recovery stutters as retail falls, jobless rises

* July retail sales -0.1 pct y/y -0.2 pct m/m

* Aug estimated unemployment rises to 13.8 pct

* Fin Min says sees jobless rate peaking in nxt few months

* Govt under pressure over bank rescue costs, jobs market (Adds comments from Finance Minister)

By Andras Gergely

DUBLIN, Sept 1 (Reuters) - Irish retail sales fell in July and jobless claims rose last month, adding to fears a nascent recovery from the euro-zone's deepest recession may have hit a wall.

Ireland officially emerged from recession in the first quarter. But a genuine recovery cannot happen until the fiscal haemorrhage from repeated bank bailouts is stopped and Dublin shakes off the image of a euro zone troublespot. [ID:nLDE67T1PA]

Retail sales fell 0.1 percent by volume on the year in July and 0.2 percent from June, the Central Statistics Office said on Wednesday, marking the first year-on-year drop in sales since January.

Separate CSO data revealed the number of people claiming unemployment benefit in Ireland rose by 2,500 in August on a seasonally adjusted basis to 455,000.

Finance Minister Brian Lenihan said Ireland's job crisis would abate in the next few months.

"It is clear that unemployment will peak in the next few months and will reduce thereafter," Lenihan told national broadcaster RTE.

But economists were less confident.

"There were some signs of strength in the first quarter of the year but they seem to have reversed over the subsequent four months," said Dermot O'Leary, chief economist at Goodbody Stockbrokers. "We're seeing a renewed bout of weakness in consumer spending."

The Central Statistics Office said August's estimated unemployment rate was 13.8 percent, up 0.1 percentage points from the previous month and compared with 12.9 percent in the first quarter of 2010, the last period for which official data is available.

The weakness of the domestic economy and the mounting cost of the bank rescue is a major threat for the stability of Prime Minister Brian Cowen's unpopular coalition government.

After loading up on credit during the go-go years of the "Celtic Tiger" economy, increasing numbers of homeowners are falling behind on their mortgage repayments due to unemployment and rising interest rates.

The number of mortgages in arrears rose by over 4,000 in the second quarter to 36,438 or 4.6 percent of total residential mortgages, the central bank said.

Economists polled by Reuters on Tuesday cut their economic growth forecasts for the next three years, projecting slower expansion than assumed in the government's planned fiscal reform trajectory. [ID:nLDE67U1FV]

"It now looks like we're going backwards in terms of the economic performance," said Alan McQuaid, chief economist at Bloxham Stockbrokers. "I think we've hit a wall."

Ireland's small and open economy would be highly exposed to a retreat in European and global growth. So far, exports have proven the bright spot in an otherwise flaccid recovery, whose fragility was also highlighted by some loss of momentum in a manufacturing PMI survey on Wednesday. [ID:nSLAVJE6AW]

Speaking before a cabinet meeting to discuss the fate of nationalised Anglo Irish Bank [ANGIB.UL], a junior government minister said the bill for its bank clean-up may top an estimate of 25 billion euros. [ID:nLDE6800XB]

"Until there's a clearer picture in terms of the banking situation, and until banks start to lend, this will just remain a vicious circle," Bloxham's McQuaid said. (Additional reporting by Padraic Halpin and Carmel Crimmins; editing by Stephen Nisbet and Andrew Hay)

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