Economy shrinks by almost 2%

THE economy shrank by nearly 2% in the third quarter of the year, fresh figures from the CSO show.

The 1.9% contraction — measured in GDP terms — followed two successive quarters of economic growth. However, domestic demand worsened in the three month period, falling by 6% year-on-year and at the fastest rate since the first quarter of 2010.

Consumer trends also deteriorated, with consumption falling by 3.9%, on a year-on-year basis.

Under the gross national product (GNP) measure, which excludes the contribution of multinationals, the economy declined by 2.2%.

Agriculture, forestry and fishing was the only sector which saw a quarterly output increase — 15% up on the previous three months — but the increase was insufficient to counteract decreases of over 20% in building and construction, about 2.6% in distribution, transport and communications and 4.1% in public administration and defence.

Most of the major economists warned that their growth forecasts for the economy in 2012 are likely to be cut.

Dermot O’Leary from Goodbody Stockbrokers noted that there still existed “enormous uncertainty” surrounding the fourth quarter.

Brian Devine, the chief economist with NCB stockbrokers, said: “Irish quarterly GDP figures are extremely volatile and we do not place too much weight on a single quarter.

“The key message we have been trying to convey though remains intact — the economic backdrop in Ireland remains extremely challenging, it is a two-tiered economy, unemployment is not going down any time soon and despite all the good work to date, Ireland is facing at least another five austerity budgets”.

Simon Barry, chief economist with Ulster Bank, noted the third quarter’s export performance was stronger than expected, albeit the slowest upward quarterly movement since the end of 1999. He said Irish GDP was on track for a return to annual growth this year, of close to 1%.

“Of course, the outlook for 2012 is subject to heightened downside risks — particularly those stemming from the ongoing debt crisis in Europe.

“Having said that, the latest readings of the Purchasing Managers’ Indices of activity in the Irish manufacturing and services sectors, point to some encouraging signs of resilience within the traded sectors of the economy.”