Ireland’s Finance Minister Michael Noonan said the country’s bailout program and full-year growth forecast remain on track, even after the economy contracted more than forecast in the first quarter.
Gross domestic product fell 1.1 percent from the fourth quarter, when it rose a revised 0.7 percent, the Central Statistics Office said in Dublin today. This put economic growth for 2011 at 1.4 percent instead of a previously estimated 0.7 percent. Economists forecast GDP to drop 0.4 percent, the median of eight estimates in a Bloomberg News survey showed.
“There’s nothing in their figures that would make us shift our growth” forecast of 0.7 percent for this year, Noonan said at a press conference in Dublin today. The country “successfully concluded” the seventh review of its international aid program with the so-called troika, he said.
Noonan said the real test of the success of the program will be the country’s ability to wean itself off aid and return to debt markets “at reasonable rates.” Ireland’s bond yields have fallen since European leaders paved the way last month for debt-laden lenders to tap the permanent euro-area rescue fund directly, once a single banking supervisor is established.
Ireland wants the policy to apply retrospectively to its banks, which have received 64 billion euros ($78 billion) of capital injections and pledges from taxpayers in the past three years.
“What we want from a negotiating point of view is a public agreement in October” to deal with the burden of the country’s bailout costs, Noonan said. That would enable the country’s debt agency “to proceed and get market funding.”
Noonan said the country, which was forced to seek a 67.5 billion-euro rescue in 2010, will be “ambitious” in its negotiations, though he declined to say what would be an acceptable outcome. About 30 billion euros of so-called promissory notes used to rescue former Anglo Irish Bank Corp., which the state has been seeking to refinance for nearly a year, “is in the discussion,” he said.
The yield on Ireland’s 5 percent security due in October 2020 rose three basis points to 6.32 percent at 2:19 p.m. London time. It dropped to 6.22 percent on July 3, the lowest since October 2010. The rate was at 7.11 percent on June 28, and exceeded 14 percent about a year ago.
While Noonan said Ireland could sustain a debt-to-GDP ratio of 117 percent to 118 percent, at which it is expected to peak next year, servicing that level of borrowings would impact the economy’s growth potential.
“Ongoing household balance-sheet repair and the still weak labor market hinder growth in domestic demand,” the country’s so-called bailout troika said in a joint statement today. “Growth prospects for the remainder of 2012 and into 2013 remain modest, with weak trading partner growth damping export demand despite further competitiveness gains.”
The troika comprises the International Monetary Fund, the European Central Bank and the European Commission.
While exports rose 2.6 percent in the first quarter, up from 0.4 percent in the previous three months, imports surged 4.9 percent, the statistics agency said today. Consumer spending dropped 2.1 percent after increasing 1.8 percent in the fourth quarter, and investment spending jumped 11.6 percent. The Irish economy grew 1.2 percent from a year ago.
“The first quarter data suggest the government’s growth target for the year should be met, but the worry is for 2013 with the weakening global economy likely to impact negatively on projections for next year,” said Alan McQuaid, an economist at Merrion Capital in Dublin.