GDP declines by 8.5% in first quarter of this year

FIRST quarter figures show the economy collapsed dramatically, confirming fears the country is in the grip of the worst recession of any developed economy.

Central Statistics Office figures showed an annual decline of 8.5% in GDP in the first quarter of 2009, driven by a collapse of 34% in capital spending and a 9% decline in consumer spending.

The collapse in GNP, which excludes the profit of multinationals, was substantially worse at 12%.

Last week the International Monetary Fund said the economy would shrink 13.5% in the three years to end 2010, delivering the worst recession of any developed economy since the end of WWII.

The budget forecast an economic reversal of 7.75% for the current year.

A spokesman for Finance Minister Brian Lenihan described the figures as “very poor”.

The continuing collapse could see unemployment rise to 500,000 by year end, analysts said.

It is already at a 13-year high and the downturn has forced the Government to cut the public sector pay bill and raise taxes to tackle the fiscal crisis.

Bloxham Stockbrokers economist Alan McQuaid, said the quarterly national accounts showed that the Irish economy posted a double-digit contraction in real GNP of 12%, which excludes the profits of foreign multinationals, in the opening quarter of 200.

“This was the worst ever performance in the history of the state,” he said.

On the plus front exports performed relatively well.

“Although on paper this is set to be an extremely difficult year for Irish exporters, the trend in the year to date has been better than expected in the economy,” he said.

The property collapse has already led to billions of losses in the banks due to bad loans while government finances have been put under severe strain leading to wage cuts and tax hikes.

Fine Gael’s finance spokesman Richard Bruton said talk of green shoots of economic recovery had been premature.

“There is plenty of evidence of the serious failure of Fianna Fáil policy in recent years, and how the recession was largely driven by government mistakes,” Mr Bruton said.

“The economy is now paying the price for Fianna Fáil’s litany of mistakes in government.

“Job creation will be Fine Gael’s first priority in government. We have drafted proposals to rebuild competitiveness and restructure the economy so that Ireland can compete and position itself for global recovery.”

The employer body IBEC said the recession looks to have bottomed.

“There is some hope that the worst may now be behind us. Many of the economic indicators are showing tentative improvements,” said IBEC economist Reetta Suonpera.

“The economy will continue to contract throughout 2009, but the pace at which we are falling appears to have stabilised,” she said.

Meanwhile, the balance of payments current account deficit in the first three months of this year came to €2.53 billion, down from €4.18bn a year earlier, also according to the CSO.

The figures show the surplus on goods surged to €8bn, mainly due to a slump in imports.