THE IRISH economy contracted sharply in the third quarter of 2011, new figures showed yesterday.
Gross domestic product, the widest measure of economic activity, contracted 1.9 per cent in the third quarter, according to the Central Statistics Office.
The three main components of the domestic demand – consumer spending, expenditure by the State and investment – all contracted between the second and third quarters. As a result, the domestic economy suffered its sharpest fall since the worst of the recession at the turn of 2008-09.
Investment in the economy in the third quarter fell to its lowest level since records began in 1997.
Exports continued to grow in the July-September period, but the rate of expansion fell to just 0.8 per cent, the second weakest quarterly performance since 2009.
In a separate development the office of the president of the European Council, Herman van Rompuy, circulated a draft of the new EU treaty to be agreed among leaders early in 2012.
It formalises the decision made by EU leaders last Friday on new budgetary rules, but suggests some flexibility on the breaching of these rules in “exceptional circumstances”. It contains no reference to corporation tax.
It proposes that the treaty can enter into force once a majority of euro area countries complete ratification. It is understood that this is a mechanism to allow early ratifiers implement the treaty, rather than a means to impose it on countries that have not ratified it.
A spokesman for the Department of Foreign Affairs described the publication as “unorthodox” and a “break with tradition”.
The weak economic growth data for the third quarter of the year follow jobs figures on Tuesday showing the biggest fall in employment in two years in the same period.
Given the deepening of the euro debt crisis in recent months, concerns have grown that the Irish economy will slip back into recession.
Fianna Fáil finance spokesman Michael McGrath said that yesterday’s figures painted a negative picture of the economy. “We’re facing a potent combination of weak consumer demand, an export sector which has been doing well but is now facing growing challenges, and lower Government spending.”
While cautioning against reading too much into one set of figures, he predicted the first quarter of next year would be difficult for the domestic economy in particular. “Many retailers will be bracing themselves for a difficult time and the 2 per cent rise in VAT won’t help.”
Despite the bleak outlook, it was important for Ireland to focus on continuing reforms, maintaining competitiveness and seeking to take advantage of an upturn when it arrived, he said.
Sinn Féin finance spokesman Pearse Doherty expressed no surprise at the figures. “We warned the Government against concentrating solely on an export-led recovery when so many other economies were starting to struggle.”
Credit ratings agency Moody’s cut Belgium’s credit ratings by two notches from Aa1 to Aa3, saying “fragile sentiment” in the euro zone may cause funding stress for countries with high public debt burdens.
Rival credit ratings agency Fitch warned Ireland and six other euro area governments that it had put them on “negative credit watch”. A downgrading of a state’s creditworthiness often follows such a warning.
Fitch also put Belgium, Cyprus, Italy, Slovenia and Spain on credit watch, with a decision to downgrade expected within months. It also put France on credit watch, but said that a downgrade for it could come over the next two years.
The agency expressed pessimism about the capacity of euro area countries to address the crisis. “Following the EU summit on 9-10 December, Fitch has concluded that a ‘comprehensive solution’ to the euro zone crisis is technically and politically beyond reach,” it said.