New blow to Irish recovery hope

A report on the value of Gross Domestic Product for July- September, which includes the country’s huge multi-national sector, showed the first drop since the end of last year.

The domestic economy also suffered, with a 2.2 per cent downturn in home-grown business compared with the previous three months.

The alarming figures from the Central Statistics Office (CSO) were published as Ireland’s bailout bosses in the International Monetary Fund (IMF) warned about the knock-on effect of economy woes overseas.

After reviewing the government’s budget and austerity measures to date, the agency signed off on a €3.9 billion (£3.2 billion) tranche of loans this week.

The IMF warned that weakening activity among Ireland’s trading partners would slow Irish exports and leave real GDP growth at about 1 per cent next year.

The report contradicted forecasts of only a minor drop in economic activity and raised doubts about the country’s capacity to meet deficit-fighting targets through painful cuts.

Ireland is midway through a seven-year deficit-fighting programme that requires at least modest growth to meet its targets. Economists had expected a drop of only around 0.5 per cent following two quarters of gains.

The third-quarter drop means Irish growth is averaging just 0.7 per cent so far this year.

Economists said they doubted that Ireland could rebound sufficiently in the current quarter, if at all, to meet the government’s modest target of 1 per cent GDP growth.

The European Union and IMF last year extended a potential €67.5 billion line of credit to Ireland.

As part of its deal, the Irish promised to rein in their deficit to the eurozone’s 3 per cent limit by 2015.

Ireland posted an EU-record deficit of 32 per cent of GDP in 2010, but hopes to reduce it to 10.1 per cent this year.

All sides agree that Ireland cannot hope to meet the 2015 goal if its economy does not grow sufficiently.