DUBLIN (Reuters) - Ireland unexpectedly followed most of its fellow euro zone strugglers back into recession in the last quarter of 2011 as exports dipped, overshadowing the economy’s first year of growth since 2007.
Irish gross domestic product (GDP) grew by 0.7 percent in 2011 as a whole, data on Thursday showed, ending three years of declines since the country’s financial crisis began that saw the economy shrink by a cumulative 10.4 percent.
But that fell short of government expectations for a 1 percent rise and Ireland, nearly halfway into a three-year bailout programme, needs growth to accelerate by three times the 2011 total next year if it is to hit targets set by its international lenders.
“Consumer spending and investment bounced back as we expected, but exports contracted on the quarter, highlighting the danger that a key platform for growth is being eroded by the euro area slowdown,” said Conall Mac Coille, chief economist at Davy Stockbrokers.
With Italy in recession, Spain expected to follow and bailed-out Portugal and Greece mired in deep downturns, analysts had expected Ireland to stand apart from its periphery peers with a Reuters poll predicting GDP growth of 0.4 percent in the fourth quarter.
But the economy shrank by 0.2 percent instead as exports - key to dragging Ireland out of its 2008/2009 recession and the growth driver in the first nine months of 2011 - dropped 1.1 percent for only their second quarterly contraction in two years.
Foreign sales were crimped by a slowdown in the global economy that saw most euro zone economies shrink in the final quarter and Germany contract by the same amount as Ireland.
Ireland nevertheless bettered the target set by its EU/IMF lenders to shrink its budget deficit to 10.6 percent of GDP in 2011 with the mild return to growth together with the latest steps in an unprecedented austerity drive reducing it to around 10 percent.
That gap between state revenue and spending is still the biggest in the euro zone at almost twice the size of Portugal‘s, and Ireland’s austerity-mired citizens face at least three more years of belt-tightening as it attempts to slash the deficit to 3 percent by 2015.
Consumer spending, which fell at a far sharper pace in 2011 than 2010, grew by 0.5 percent in the fourth quarter, though the government does not expect the domestic economy to bottom out until next year, let alone take off.
Ireland’s quarterly GDP data are notoriously volatile due to the inclusion of the earnings of Irish-based multinationals, and third quarter GDP - which initial figures showed contracted at the fastest pace in over two years - was revised up to a fall of 1.1 percent from 1.9 percent.
Gross National Product (GNP), seen by some economists as a more accurate indicator of the state of the economy because it strips out the multinationals’ earnings, fell 2.2 percent in October-December, well below the 1.5 percent increase expected by the economists polled by Reuters.
Additional reporting by Lorraine Turner; Editing by John Stonestreet