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Irish Economy Cools as IMF Warns on Impact of Austerity Measures

Ireland’s economy cooled in the third quarter, underscoring the International Monetary Fund’s warnings on the effects of austerity.

Gross domestic product increased 0.2 percent from the second quarter, when it rose a revised 0.4 percent, the Central Statistics Office said in Dublin today. The agency had previously estimated that the economy stagnated in the three months through June. Third-quarter growth missed the 0.6 percent median estimate of five economists surveyed by Bloomberg News.

“There are some glimmers of light with domestic demand and consumer spending” improving, said Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin. “The figures indicate that the economy is bouncing along the bottom.”

The economy expanded 0.8 percent in the third quarter from the year-earlier period. The IMF said yesterday that Ireland’s outlook faces “significant risks” from weakening in the economies of its trading partners and a fifth year of austerity. The government laid out 3.5 billion euros ($4.6 billion) of tax increases and cost-cutting measures earlier this month.

“The worry is obviously you can’t see consumer spending holding up much given the austerity in the budget,” said Alan McQuaid, chief economist at Merrion Capital in Dublin. “Clearly, we are the only country that is growing among the peripherals so that helps in our perception abroad.”

Exports rose 0.3 percent in the quarter, while imports increased 2.1 percent, the CSO said. Consumer spending gained 0.5 percent and investment spending climbed 8.5 percent.

IMF Warns

Net government spending dropped 0.3 percent, falling for the 14th quarter in 15. The IMF said yesterday the government should defer any additional austerity measures to 2015 if growth disappoints next year.

Ireland is three quarters of the way through budget cuts amounting to about a fifth of the size of the economy, stretched over eight years through 2015.

Gross national product, a separate gauge of economic activity, fell 0.4 percent in the third quarter from the second quarter and rose 3.7 percent from the year-earlier period. GNP excludes repatriated profit from overseas companies.

The yield on Ireland’s 5 percent security due in October 2020 traded five basis points lower at 4.62 percent.

The report “should give the Irish government some cause for optimism as we head into 2013, with growth figures suggesting the recovery remains intact, albeit still quite modest and still very fragile,” said Owen Callan, an analyst at Danske Bank A/S in Dublin.

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