Taoiseach Brian Cowen insisted today that people must start spending more cash as he dismissed claims that Ireland was heading for a double-dip recession.
Official figures revealed the economy began to contract again between April and June after showing the first signs of recovery in the previous three months.
National output dropped a significant 1.2% but Mr Cowen rejected claims that the country was slipping back into a second prolonged downturn.
“I don’t accept that analysis, based on this second quarterly report,” he said.
“You have to look at the full year to get the best possible estimate of how things will go.”
Mr Cowen said the Central Statistic Office report came against a backdrop of the economy performing better than expected in the first three months of the year.
Despite unemployment soaring to 462,000, the Taoiseach singled out the big decline in consumer spending and claimed that people will have to get out and shop to help resurrect the country’s fortunes.
“We have to continue to encourage people – those who have disposable income - to spend in the domestic economy,” he said.
The CSO report showed Gross Domestic Product (GDP) – the value of goods and services including foreign-owned companies – suffered a 1.2% decline in trade between April and June.
The downturn came after businesses, both homegrown and multinational, had shown signs of picking up after the New Year.
Domestic firms were also hit in the second quarter, but not to the same extent, with their value down by 0.3%.
In a breakdown of the national accounts, the CSO said the economy was hit by a fall in consumer spending – down 1.7% compared to the same period last year.
The Government suggested a sudden surge in imports had also damaged the early signs of recovery.
Finance Minister Brian Lenihan insisted he stood by his assessment late last year that the economy had turned a corner and called for a cautious analysis of the report.
“I agree that these (figures) are not encouraging but we have moved from a position of a very sharp, steep, decline to a position where we have stabilised,” he said.
He added: “It is clear the economy is sluggish. But it has moved from a position of decline to a position of stability and that will pose serious budgetary challenges for the Government.”
The Government is planning to issue revised forecasts on the economy and state finances in October ahead of Budget 2011.
The Opposition dismissed the Government’s insistence that a corner had been turned.
Joan Burton, Labour’s finance spokeswoman, said the figures should come as a cold dose of reality and a bitter disappointment.
“These numbers show that far from having turned the corner earlier this year, the Irish economy suffered a ’dead cat bounce’,” she said.
Arthur Morgan, Sinn Féin’s finance spokesman, said: “The Irish economy may have technically emerged from recession in the first quarter of the year but today’s figures underscore the reality that there can be no sustainable economic growth when there is still an absence of jobs.”
The report overall showed the domestic economy was still struggling, prompting analysts to warn over how far the Government should go with plans for at least €3bn cuts in the December budget.
Question marks have also been raised over Mr Lenihan’s economic forecasts after last December’s budget projected a return to growth in six to nine months.
Mr Cowen said a lot of work remained to be done to drive up exports, despite the CSO reporting an €884m rise on the same three months in 2009.
The CSO also reported that the overall value of industry output grew 1.7% on the second quarter of last year but construction, one of the biggest victims of the country’s downturn, was down 28%.