September 20, 2012 / 11:24 AM / in 5 years

Irish GDP flat in second quarter, keeps government targets under pressure

DUBLIN (Reuters) - Ireland’s economy unexpectedly failed to grow in the second quarter, just about skirting a return to recession after a poor first three months of the year, and making it trickier to meet modest 2012 growth targets set under its EU/IMF bailout.

Irish gross domestic product (GDP) has been one of the most resilient in the euro zone during the debt crisis, growing by 1.4 percent last year but the export-led nature of that growth makes it vulnerable to a slowdown among its trading partners.

Ireland therefore sees GDP growing by just 0.7 percent this year, a view backed up by another set of disappointing euro zone business activity surveys on Thursday, but the flat second quarter only slightly bettered the 0.7 percent dip in the first.

“It was disappointing. I think it probably provides downside risks (to full year forecasts) given the performance,” said Dermot O‘Leary, chief economist at Goodbody Stockbrokers.

“We would have expected a bounce in Q2 but it’s a familiar story in terms of the components, domestic demand is weak and a real indicator of that is the employment data yesterday while exports continue to contribute to growth overall.”

Economists surveyed by Reuters had expected Irish gross domestic product (GDP) to grow by 1.0 percent in the three months to June and bounce back from the fall in the first quarter that was revised slightly up from -1.1 percent.

The flat second quarter compared to falls in fellow euro zone strugglers Greece, Portugal, Spain and Italy over the same period and Ireland’s economy is the only one among the five whom the European Commission sees growth this year.

However Ireland, which became the first bailed out euro zone country to return to long-term debt markets in July, desperately needs growth to accelerate if it is to eat into a debt pile set to peak close to an alarming 120 percent of GDP next year.

The government’s expectation for a 2.2 percent increase in GDP in 2013 is already under pressure after the European Commission and IMF recently both cut their forecasts for Irish growth to 1.4 percent.

“Next year looks like it will be more of a challenge,” said David Duffy, economist at the Dublin-based ESRI think tank, adding that the government’s deficit targets for this year remained on track owing to robust public finance numbers.

“It really just depends on how the measures that are being taken impact on the European economy and on European growth. If our potential markets are in a phase of low or moderate growth, it’s going to be difficult. Next year could be trickier.”

The second quarter figures showed that exports fell by 0.5 percent, only the second quarterly fall since the third quarter of 2009 while personal consumption was down 0.4 percent, its sixth fall in the last seven quarters.

In the midst of implementing an unprecedented wave of austerity, the government does not expect domestic demand to grow until 2014 and figures on Wednesday showed that employment continued to fall at an accelerated pace.

Gross National Product (GNP), viewed by some economists as a more accurate indicator of the state of the economy because it strips out the earnings of Irish-based multinationals but nevertheless a volatile measurement, rose 4.3 percent in the quarter, compared to the 0.8 percent increase expected.

Ireland’s current account surplus came in at 3.235 billion euros in the second quarter.

Reporting by Padraic Halpin; Editing by Toby Chopra

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