THE IRISH economy shrank sharply in the first three months of this year, official data revealed yesterday.
Output slumped by 0.6 per cent in the quarter, confounding expectations of a 0.3 per cent increase in GDP.
And other months of data were also revised down, taking the economy into its third consecutive quarter of contraction. That means the economy is officially in recession territory.
Those changes mean the economy only expanded by 0.2 per cent over 2012 as a whole, not the 0.9 per cent initially estimated.
The negative reading also comes as a surprise because other indicators had shown the troubled Eurozone economies at last beginning to recover from the aftermath of the financial crisis and the worries over the sustainability of governments’ debts.
“It clearly shows that we’re not immune to what’s going on globally. Given these numbers you would be hard pushed to have growth for the year as a whole,” said economist Alan McQuaid from Merrion Stockbrokers.
The government wants growth of 1.3 per cent as part of its plan to ease itself out of its 2010 bail out from the EU, Eurozone and International Monetary Fund.
It has implemented the tough economic reforms tied to the bailout money vigorously, which has resulted in pushing unemployment up to 14 per cent.
The idea is that the economy needs to go through an internal devaluation, becoming more competitive versus its rivals, so growth can take hold again once more. But slow growth may spoil the country’s return to financing itself in international debt markets.
“It’s very fragile and it probably means we have to be very careful about the scale of adjustment in budget 2014,” said KBC Ireland economist Austin Hughes.