Recession ends but Noonan warns of difficult budget

Exports and consumer spending rise but GDP growth fails to meet projections

 Minister for Finance Michael Noonan, speaking on the steps of the Department of Finance yesterday after the quarterly results were published. Photograph: Eric Luke/The Irish Times

Minister for Finance Michael Noonan, speaking on the steps of the Department of Finance yesterday after the quarterly results were published. Photograph: Eric Luke/The Irish Times

Fri, Sep 20, 2013, 01:00



The economy formally left recession in the second quarter, according to figures published yesterday by the Central Statistics Office.

However, the overall picture was mixed and, of greater concern to the Government, the economy in cash terms is expected to be considerably smaller in 2013 than the projections on which current budgetary arithmetic is based. This is likely to further complicate the framing of next year’s budget as it may result in this year’s target being missed.

Under the term of Ireland’s bailout and wider EU obligations, the ceiling for the budget deficit as a percentage of gross domestic product is 7.5 per cent. Because GDP in the first half was considerably lower than predicted last December, the chances of missing this target have increased.

This may make it more difficult for the Government to seek to reduce the size of the budget adjustment next year. It had originally committed to a package of cuts and tax increases of €3.1 billion, but Tánaiste Éamon Gilmore, among others, has insisted it must be smaller.

While welcoming the figures, Minister for Finance Michael Noonan said Budget 2014 was still going to be very difficult. “There’s no reason to be throwing our hats in the air or anything like that,” he said.


‘Weak economy’
Fianna Fáil finance spokesman Michael McGrath said the figures showed the domestic economy was still weak.

On yesterday’s data, exports and consumer spending powered the economy in April to June, generating quarterly growth of 0.4 per cent in GDP. This seasonally adjusted increase was slightly stronger than the 0.3 per cent rate of expansion in the wider euro zone. Compared with the previous three-month period, the volume of goods and services exports jumped by 4.3 per cent. This was the largest quarterly growth rate in recent years, although much of it was rebound after an unusually large decline in the first quarter.

The uptick in consumer spending was strong. Growth of 0.7 per cent on the quarter was the highest rate of expansion in more than two years; although, again, this in part reflects a rebound on the first quarter.

Less positively, the domestic economy contracted yet again in the second quarter, to reach a new post-crash low point.

A decline of 0.7 per cent was recorded in the second quarter when compared with three months earlier. Apart from consumer expenditure, all other components of the domestic economy registered contractions. Of the six sectors for which figures are published, three grew, while three contracted. Output in distribution, transport, software and communication, industry and construction expanded. Agriculture, public administration and “other services” declined.