Ireland’s ‘Poster Boy’ Image in Europe Tainted as Economy Slumps
Ireland’s economy shrank at the fastest pace in more than two years in the third quarter, tainting the one-time Celtic Tiger’s image as a model of austerity in the euro region.
Gross domestic product fell 1.9 percent from the second quarter, when it rose a revised 1.4 percent, the Central Statistics Office said in Dublin today. The decline was the biggest since the first quarter of 2009 and faster than the 0.8 percent median estimate of five analysts surveyed by Bloomberg News. From a year earlier, GDP fell 0.1 percent.
The data “spoil its emerging image as a ‘poster boy’ for other debt-laden peripheral euro-zone economies,” said Jonathan Loynes, an economist at Capital Economics Ltd. in London. “The figures still put something of a dent in hopes that Ireland was starting to reap the rewards of its economic reforms and austerity measures.”
Finance Minister Michael Noonan has lowered the country’s 2012 growth forecast twice in the last six weeks, as the euro debt crisis weighs on the global economy. Ireland is relying on export growth to reignite the economy, which has shrunk about 15 percent since 2008, as consumers rein in spending.
“The figures show an incredibly weak underlying performance,” said Jim Power, chief economist at Friends First in Dublin. “While exports are growing at a reasonable pace, domestic demand and investment are not happening. The weakening global outlook is another concern.”
Exports rose 0.8 percent on the quarter, the statistics office said. Consumer spending decreased 1.3 percent. Investment fell 21 percent as airlines spent less on planes, while government spending dropped 1.3 percent.
Gross national product fell 2.2 percent in the third quarter from the previous three months and slumped 4.2 percent in the year. The difference between GDP and GNP is partly due to net factor outflows.
Irish bonds due in 2020 yielded 8.54 percent today, falling 20 basis points from yesterday. Ireland was forced to seek a bailout last year, and the government is targeting a full return to bond markets by mid-2013.
“Today’s figures don’t change the overall picture too much; the main reason GDP fell so strongly was a drop in investment,” said Conall Mac Coille, an economist at Dublin- based securities firm Davy. Still, with consumer spending falling quicker than expected, Mac Coille said he expects to cut his 1.5 percent growth estimate for next year.
Noonan said this week his budget for 2012 will ensure that the country meets the fiscal targets under its bailout. The government is targeting budget savings of 3.8 billion euros ($4.96 billion) next year even as unemployment in the third quarter rose to 14.4 percent.
“The fact that these figures are volatile means we shouldn’t read too much into them,” said Capital Economics’ Loynes said. “These figures will underline the point that Ireland isn’t fully out of the woods just yet.”
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