DUBLIN (Reuters) - Ireland’s economy slid into recession late last year and continued to contract sharply in early 2013, new and revised figures showed on Thursday, just months before it is due to exit its EU/IMF bailout programme.
Gross domestic product shrank 0.6 percent in the first quarter of this year from the previous three months, confounding analysts’ expectations of 0.3 percent growth - a shock reading that shows the euro member is recovering from financial crisis much more slowly than previously thought.
Revised data also showed a quarterly contraction of 0.2 percent in the fourth quarter of 2012, meaning Ireland’s economy has shrunk for three successive quarters and is in its first recession since 2009.
“It clearly shows that we’re not immune to what’s going on globally. Given these numbers you’d be hard pushed to have growth for the year as a whole,” said Alan McQuaid, economist at Merrion Stockbrokers.
Ireland has been one of the few euro zone countries to have eked out mild growth as the currency bloc’s debt crisis has unfolded, despite harsh spending cuts and tax hikes imposed to help bring down one of Europe’s highest budget deficits.
Though Irish people have not protested against austerity as angrily as those in other indebted states such as Greece and Spain, many have endured salary cuts of up to a fifth and big tax rises. Unemployment has more than tripled, to 14 percent.
The second euro zone country to be rescued, in November 2010, it is due to complete its bailout later this year and has made a limited return to bond markets, although yields on its debt have recently started to rise again.
Analysts say the country has enough cash to cover most of its funding needs through next year, however, and should exit the aid deal on schedule, providing the European Union with a badly-needed success story for austerity.
The poor economic data rounds off a bad week for Ireland, where public anger is growing over leaked tapes of bankers laughing about a government rescue of the financial system that led to the bailout and years of austerity.
Three years on, a split in society is becoming clearer - property is selling fast in upmarket areas of Dublin, while shells of unfinished houses litter ghost estates and suburbs around the country. Overall, house prices have fallen by half.
“Dublin is booming, but I go to my home town and most of the shops are closed down,” said human resources worker Lynn, who did not want to give her second name. “It’s heartbreaking. Here it’s completely different. I can’t find properties to rent for people who are relocating.”
Thursday’s data showed the economy grew by just 0.2 percent last year, rather than the 0.9 percent initially thought, and an export-led recovery stalled in the second half of 2012, largely because of the slowdown in the rest of the euro zone.
The Irish government is targeting growth to bounce back this year to 1.3 percent and return towards the level seen in 2011, when the economy expanded by 2.2 percent - a figure that was revised upwards on Thursday.
But that now looks unrealistic after personal consumption fell 3.0 percent in the first quarter, its sharpest drop in four years. Exports of goods and services had an even steeper decline of 3.2 percent, the most since Ireland’s economic crisis began.
The prospect of easing up a little on austerity, which the government has been considering given leeway offered by a deal which eased the terms of debt repayment, now looks trickier.
“It’s very fragile and it probably means we have to be very careful about the scale of adjustment in budget 2014,” said KBC Ireland economist Austin Hughes.
Additional reporting by Padraic Halpin and Sam Cage; Editing by Catherine Evans