The 2009 Q1 results are in...

Official figures show that there was a dramatic contraction in the economy in the first three months of this year.

The Central Statistics Office said economic output, as measured by GDP (gross domestic product), fell at an annual rate of 8.5%. The decline in GNP (gross national product) - which excludes profits from multi-national companies based here - was even bigger at 12%. The CSO describes these figures as 'unprecedented' and they are weaker than economists had expected.

Consumer spending was more than 9% lower than the same period in 2008, while capital investment plummeted by 34%. Industrial output dropped 10.5% over the year, including a fall of 31.4% in construction output. New housing was down by 47%, and there was a 20% fall in other building and construction projects.

Other CSO figures showed a fall in the Balance of Payments current account deficit in the first three months of this year. The deficit was €2.53 billion, down from €4.18 billion a year earlier. The surplus on goods surged to €8 billion, mainly due to a slump in imports. The balance of payments measures flows of trade and income into and out of the country.

Central Bank predicts 4.7% drop in Irish GDP in 2009

The Central Bank says it expects the economy to contract by 4.7% this year. The country continues to be impacted by global recession and falling demand in what the bank called 'an exceptionally difficult period for the Irish economy.' In its latest economic forecast - the first of 2009 - the Central Bank says the contraction will lead to significant job losses with 100,000 fewer people working at the end of the year. The bank also says that unpalatable short term measures are needed if the economy is to stabilise in 2010. The Central Bank says that GNP will slow by 4.7% in 2009, while GDP will contract by 4%. This compares to estimated figures of negative GNP growth of 2.6% for 2008 and negative GDP growth of 1% for 2008. The figures are a marked slowdown from the GNP growth of 4.1% seen in 2007, while GDP growth registered 6% then. The Central Bank also says that consumer spending will slow by 2.5% this year while inflation will fall to an average rate of -1.9%.

'We are in an exceptionally difficult period for the Irish economy,' commented Central Bank Governor John Hurley as he published today's economic bulletin. 'Our forecasts published today indicate a further serious downturn in the coming year,' he added. He said that to support a return to a more stable economic activity in the medium term, difficult decisions have to be taken and implemented now.

'In particular, it is vital that we move to correct the sizeable deficit in the public finances and that we improve our competitiveness position, which is all the more important in the light of the global downturn,' he said. In the housing market, blamed for many of the country's current ills, the Central Bank says completions could fall to as low as 22,000 units this year compared to 52,000 last year. Last year saw the first drop in employment in many years. The Central Bank says that trend is set to accelerate and assuming some emigration, unemployment is likely to average 9.4% of the labour force this year. However, the bank also believes that Ireland has the potential to grow strongly again if productivity can be improved. But it adds that the potential is not a given and it warns that unpalatable measures are needed. The bank says the largest item of Government expenditure - the public sector pay bill - is 'beyond the scope of current resources'. It says the public sector needs to use its purchasing power to drive hard bargains with the services sector.

China becomes world's third largest economy

Ashley Seager reports in Thursday's Guardian that China has overtaken Germany to become the world's third largest economy after revising its figures for output growth. The Chinese economy has grown tenfold in three decades and grew 13% rather than 12% in 2007, Beijing said, putting it behind only the United States and Japan in terms of gross domestic product.

The revision raised the Chinese gross domestic product to 25.7 trillion yuan, the national statistics bureau said, or $3.5tn at 2007 exchange rates. That would be ahead of Germany's 2007 GDP of €2.4tn, or $3.3tn. The fact that China has 1.3 billion people, though, means that GDP per head – a typical measure of individual wealth – remains well behind leading economies. Germany's 85 million people were far ahead of China in this category in 2007 at €28,200 euros per head ($38,800). China's per-person figure was 19,800 yuan ($2,800) in 2007, although many Chinese survive on a lot less than that. The Chinese government says 100 countries in the world enjoy a higher income per head than it does.

China expects to keep on growing in spite of the current economic turmoil. But economists have slashed 2009 growth forecasts to as low as 6%. That would be the highest for any major economy but is worrying for the country's leaders, who are concerned about public anger over recent job losses. Nevertheless, economists think it will take only three to four years for China, which recently overtook Britain, to surpass Japan ($4.4tn GDP) to become the world's number two economy. The United States is the world's biggest economy, at $13.8tn in 2007.

'Economist Intelligence Unit' on Ireland

This week's Economist magazine has a highly-recommended and comprehensive overview of the current contraction of the Irish economy. Their Economist Intelligence Unit expects Irish GDP to decline by a substantial 2.5% over 2008. While in 2009 and 2010 they forecast further contractions of 2.3% and 0.5%, respectively. Factors that will negatively impact on purchasing power and consumer sentiment are falling employment levels, rapidly rising joblessness, strains in the banking system, further tax increases and the negative equity due to declining house prices.

'The Tiger Tamed', The Economist, 20th November, 2008

Euro Commission unhappy with our budget deficit

The European Commission has expressed concerns about the size of our budget deficit. Our public finances are expected to be in the red by 5.5% this year, and 6.5% next year, which goes against EU stability rules. Under EU rules, governments are supposed to keep borrowing below 3% of GDP.

The Government is to be asked to reduce borrowing levels to below 3% of our GDP, and if it doesn't, EU authorities will take action against Ireland. The pact allows for a government to be fined if it fails to bring its deficit below the 3% ceiling over three or four years, although this is regarded as more of a theoretical possibility — in practice it has never happened.

The Commission has forecast that the situation will only get worse, estimating that the difference between Ireland's spending and revenues will rise to 6.8% in 2009 and 7.2% in 2010.

Bank of Ireland forecasts loss of full employment

The Bank of Ireland published its Quarterly Economic Outlook today. Its outlook for the economy falls into line with other recent forecasts. The main points are:

• The falloff in house construction, high oil prices in the first half of 2008 and the global credit crunch will lead to a decline in our GDP of 1.6% this year, the first decline in national income in 25 years. They said they cannot forecast the fall in GDP in 2009.
  

• Exports will provide the only substantial support to economic activity.

• There are two positives that may restore some confidence - dropping oil prices and lower interest rates.

• Unemployment will go over 7% next year, moving the Irish economy away from full employment (160,000 or fewer unemployed) for the first time in a decade.

Poor GDP Forecasts

The growth in Ireland's Gross Domestic Product (the market value of all the output produced here) will turn negative in 2008 for the first time in 25 years with only modest growth forecast in 2009, according to a new report from PricewaterhouseCoopers (PWC).

According to PWC, the rate of Irish growth will fall to -1% this year and recover only slightly next year to 0.5%. "Low consumer confidence, higher unemployment and weakening demand from Ireland's main trading partners will continue to have adverse effects on prospects for growth in the Irish economy with the recent reduction in interest rates only a small step towards aiding recovery," said Yael Selfin, head of macro consulting at PWC.