* Skirts recession as GDP for 2011 revised up, Q1 weak
* Lenders give thumbs-up but say growth outlook modest
* Exports robust but personal consumption still weak
* Fin min says confident on growth, budget targets
By Padraic Halpin and Conor Humphries
DUBLIN, July 12 (Reuters) – Irelands economy shrank in the
first quarter of the year but exports held up well, bolstering
government hopes of meeting budget targets as international
lenders praised the countrys commitment to a tough bailout
While the quarterly contraction was unexpected, an upward
revision of earlier numbers meant it steered clear of recession
in 2011, though stubbornly low levels of consumption at home
clouded its growth prospects for the coming 18 months.
In a rare but anticipated fillip for policymakers efforts
to keep the euro zone debts crisis in check, inspectors from
Irelands troika of lenders again gave the country a clean
bill of health on Thursday in their latest bailout review.
Also buoyed by a successful return to short-term debt
markets last week, the countrys finance minister said the
government was on track to meet its budget targets for this
The Irish economy experienced solid growth in 2011. Also
our latest Exchequer returns show that our 2012 tax take
continues to grow. Taken together, this data shows that we are
on track to meet our 2012 deficit target Michael Noonan said.
But the lenders from the European Union, European Central
Bank (ECB) and International Monetary Fund (IMF) said prospects
for growth were less rosy.
Irelands policy implementation remains on track despite
challenging macroeconomic conditions, they said in a statement.
Growth prospects for the remainder of 2012 and into 2013
remain modest, with weak trading partner growth dampening export
demand despite further competitiveness gains.
Growth for 2011 was revised sharply upwards to 1.4 percent
from a provisional 0.7 percent, the Central Statistics Office
(CSO) confirmed on Thursday after inadvertently releasing the
data for a short period a day ahead of schedule.
But gross domestic product shrank by 1.1 percent in the
first quarter of 2012, against forecasts for a 0.4 percent rise
A breakdown showed that despite flat growth in its main
trading partners in Europe, Irelands exports rose by 2.6
percent quarter-on-quarter from January to March and by a better
than initially thought 5 percent in 2011.
However a surge in imports – which the CSO said was largely
due to aircraft purchases – led to a decrease in net exports and
thus a drop in GDP.
The negative impact on GDP may be temporary or reflect
stronger demand going forward. The decline in GDP in Q1 does not
appear too worrying, the key point being that export growth has
remained robust, said Conall McCoille, chief economist at Davy
Overall, the GDP release is a positive sign.
The revision upwards of fourth quarter GDP growth to an
increase of 0.7 percent from the fall of 0.2 percent first
thought also meant Ireland avoided joining most of the euro zone
in returning to recession last year.
While the surprise first quarter drop means economic output
contracted faster during that period in Ireland than in Italy,
Spain and Portugal, the European Commission has forecast that
only Ireland will deliver growth for the year as a whole.
The troika did not give any update on its April forecast for
GDP growth of around 0.5 percent this year.
But the government needs expansion to speed up to between 2
and 3 percent from 2013 onwards if it is to eat into a debt pile
set to peak at 120 percent of GDP, right on the limit of what
most in the market consider sustainable.
The growth boost in 2011 helped ease the pressure, with
Davys McCoille estimating that last years debt to GDP ratio
was 106.5 percent, rather than 108.2 percent.
Noonan said it would also mean the debt would likely stay
just below 120 percent next year but that the governments aim
is to cut it to below 100 percent as a result of negotiations
with its European partners on improving the terms of an
expensive bank sector rescue.
But whatever happens in talks that are set to run until
October, exports cannot handle the burden of Irelands debt
alone and a recovery will also be needed in a domestic economy
weighed down by high levels of personal debt and an austerity
programme that has still at least three more years to run.
Gross National Product (GNP), seen by some as a better
measure of the state of the economy because it strips out the
earnings of Irish-based multinationals, fell 1.3 percent in the
first quarter, compared to an expected 0.8 percent increase.
Consumer spending also fell, by 2.1 percent, which together
with an unemployment rate that climbed to a crisis-high of 14.8
percent last month, does not bode well.
Ongoing subdued domestic demand was reflected in consumer
price data for June, when the index fell by a slightly more than
expected 0.2 percent to stand 1.7 percent higher than a year
earlier, separate figures showed on Thursday.
We really need to see an improvement in domestic demand and
theres no real sign that that is in prospect, said Dermot
OLeary, economist at Goodbody Stockbrokers.
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