THE Government’s financial troubles worsened after Ireland became the first eurozone country to officially enter recession.
With less than three weeks to the budget, Taoiseach Brian Cowen last night admitted the country was in recession for the first time in 25 years and that “painful” cuts were in store.
The opposition parties said the Government can no longer blame international factors for the downturn. Labour finance spokeswoman Joan Burton said: “Ireland, as a country, now has the R word attached to it in terms of international lists of how economies are performing. It is a reflection on the kind of Cowen economics that the former Minister for Finance and now Taoiseach has subjected the economy to.
“It means that we enter into the budget in even more difficult circumstances. It shows the folly where we were over-reliant on the construction sector.”
Fine Gael finance spokes-man Richard Bruton said the Government must face up to reality after seeking to deny the recession in recent months. “It is very plain that the Government have been caught entirely flat-footed. Their flirtation with the property boom and the bubble in the property sector has seriously damaged the capacity of the economy to cope with more difficult times,” he said.
The recession was confirmed in official figures from the Central Statistics Office which show the bursting of the property bubble and a collapse in consumer spending has seen off the boom that was dubbed the Celtic Tiger.
The figures show the gross domestic product (GDP), which measures the value of all the goods and services produced in the State, fell 0.8% in the second three months of this year compared with the same quarter of 2007. This is the second successive quarter of negative economic growth, which is the technical definition of recession.
This will be the first time since 1983 the economy will be hit by falling growth, or recession, with some economists predicting 2009 could also see the economy in recession as weakening internal demand and slowing exports undermine growth further.
Speaking in New York last night, Mr Cowen said: “We are seeing job losses, we are in recession. The definition of recession is two consecutive quarters of contracting activity. The CSO has confirmed that’s the case. While unwelcome, that is the case. The whole European economy is heading in the same direction.”
Finance Minister Brian Lenihan also admitted that unemployment would reach 5.8% by year-end.
This worsening economic landscape piles further pressure on the Government as it faces the increasingly difficult task of shaping the budget, to be presented to the Dáil on October 14.
It already faces a shortfall of at least €5 billion in its tax take for this year and the outlook for 2009 could leave the Government with a deficit of €8bn.
“These figures show that, to all intents and purposes, the Irish economy is in recession,” said Bloxham Stockbrokers chief economist Alan McQuaid.
“Although the domestic side of the economy is contracting at a significant rate, the external side, the multinationals, is holding up quite well, but one would have to question how long that’s going to last,” he said.
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