Taoiseach denies economy facing double-dip recession
The Taoiseach has denied that Ireland is heading for a double-dip recession after figures published today showed the economy contracted between April and June.
Speaking at the National Ploughing Championships in Co Kildare, Mr Cowen described today’s figures as “disappointing”.
Mr Cowen denied the figures indicated the country was facing a double-dip recession. “You’ve got to look at the full year to get the best possible estimate of how things will go,” he said. “What I think is true is [that] we are seeing a stabilisation this year, as against a big decline.”
Mr Cowen said domestic demand was lower than he would like and said the Government had to continue to encourage people who have disposable income to spend.
Minister for Finance Brian Lenihan said the data show the pace of decline in consumption and investment was easing and broadly in line with projections.
"I agree that these are not encouraging figures but we have moved from a position of a very sharp steep decline to a position where we've stabilised," he said. "That is a turning of a corner that hasn't been seen in very many economies in the world."
Mr Lenihan said the figures showed domestic business had stabilised and weaknesses in the economy had come from a surge in imports over the three months.
"The second quarter figures are affected by a spike in imports in part resulting from an increase in royalty payments that depressed the overall GDP figure," he said. “The figures for exports are strong and I am encouraged by this, the necessary competitiveness improvements are working. We must export our way out of our current difficulties, there is simply no other way."
Figures from the Central Statistics Office (CSO) today showed that the Irish economy contracted in the second quarter of the year as gross domestic product (GDP) shrank 1.2 per cent compared with the first three months.
Gross national product (GNP), which excludes the effect of foreign-owned enterprises’ repatriated profits, shrank by 0.3 per cent on the quarter.
Both figures are adjusted to take seasonal factors into account.
Davy analyst Aidan Corcoran said much of the apparent increase in imports came from a 15 per cent rise in royalties paid abroad, "something which is not likely to be repeated”.
Mr Corcoran said the dip back into negative territory was “not entirely surprising”. However, he noted that the decline in GNP was at a slower pace than that seen in the first quarter, and provided some encouragement. “The trend in GNP growth remains positive,” he said.
Private and public consumption spending contracted compared to the first three months of the year, but investment rebounded sharply. The later development reflected a slight rebound in construction activity and increased purchases of aircraft among other developments.
Compared to the same period in 2009, GDP was 1.8 per cent lower and GNP was down 4.1 per cent. This was accounted for by consumer spending, which slipped 1.6 per cent in volume terms, government consumption, which declined by 4.8 per cent, and a 20.6 per cent decline in capital investment compared to 2009.
Exports grew again from a very high level in the first quarter. In the second quarter, the volume of goods and services sold abroad reached an all time high.
Fine Gael finance spokesman Michael Noonan said the figures were evidence the Government’s economic policy was a disaster.
“Along with Iceland and Greece, Ireland is one of the few countries in the world to suffer negative growth in the second quarter,” he said.
“It could be argued that despite Mr Lenihan’s bluster, the recession never ended at all. GNP fell again in April-June for the ninth consecutive quarter, and was a shocking 17 per cent lower than its peak in the first quarter of 2007. No other country in the industrialised world has experienced such an economic disaster since the Second World War.”
Bloxham’s chief economist Alan McQuaid said the overall figures were “disappointing to say the least”.
“While one can’t argue with the CSO that it would have been hard to repeat the strong first quarter-on-quarter increase in real GDP in the April-June period, the fact that it actually fell 1.2 per cent in the second quarter is a serious cause for concern,” he said.
“The bottom line is that based on the figures in 2010 to date, there is very little chance of Ireland posting positive GDP growth for the year as a whole, and forecasters, including those at the Department of Finance will have to revise down their projections for both this year and next.
“This in turn will only add to the pressure on the Government to deliver a further €3-4 billion in budgetary adjustments in the December Budget and at the same time try and boost activity/growth in the economy,” he said.
Labour's finance spokeswoman Joan Burton said the quarterly figures were a "cold dose of reality" for the Government.
"These disappointing numbers come in the wake of yesterday’s labour market data, which showed unemployment continuing its relentless rise. We may now have over half a million people on the dole by Christmas as the unemployment rate spikes above 14 per cent for the first time since the early 90s," she said.