Ireland faces recession after Celtic Tiger era
DUBLIN (AFP) — Ireland's so-called Celtic Tiger economy is roaring no more and faces the prospect of a recession after official data on Monday revealed shrinking growth during the first three months of the year.
Ireland has been hammered by the international credit crisis, a housing and construction market collapse, falling consumer spending, record-high crude oil prices and a strong euro, according to analysts.
The threat of a recession will be a major headache for Irish Prime Minister Brian Cowen, who has faced a baptism of fire since his election in May.
Irish voters rejected the European Union's Lisbon Treaty in June, plunging the 27-member bloc into institutional uncertainty. Cowen called the rejection a "considerable disappointment and potential setback" for the EU.
The Celtic Tiger economy was until recently the pride of the emerald isle, and an international phenomenon, having produced a period of double-digit growth during the 1990s which placed the eurozone-member among the richest nations in Europe.
However, it has since struggled, and official data showed Monday that the Irish economy's growth rate plummeted by 1.5 percent in the first quarter of 2008 on an annual basis.
"The contraction in the Irish economy in the first quarter confirmed that the boom of the last decade has finally turned to bust," said Capital Economics analyst Jonathan Loynes.
"It seems very likely that the economy is heading into a property-led recession." A recession is defined as two successive quarters of negative economic growth.
Irish think-tank, the Economic and Social Research Institute forecast, last week forecast that the country's economy would plunge into recession in 2008 for the first time in 25 years.
Ireland's Central Statistics Office (CSO) said in a statement Monday that consumer spending in the first quarter grew by 3.5 percent compared with the equivalent period of 2007.
But capital investment shrank by 18.6 percent. The biggest factor behind the decline was Ireland's slumping house building market.
Analysts reckon that the perilous state of the housing market could herald even worse economic growth in the coming months.
"There are very good reasons to believe that the worst is far from over," said Loynes.
"After all, the property downturn is still in full swing, with house prices now having fallen in each of the last 15 months.
"Prices are down by around 12 percent from their peak and look set to drop considerably further," added the London-based economist.
The CSO also said on Monday that gross national product (GNP), the more favoured Irish measurement of growth, expanded by 0.8 percent in January to March.
In the last quarter of 2007, GDP expanded by 5.5 percent and GNP grew by 2.3 percent on an annual basis, according to final adjusted figures published on Monday.
GNP is regarded by the government as a more accurate barometer of the country's economic performance as it strips out substantial profits earned by multi-national companies in Ireland which are then taken out of the country.
Major companies with bases in Ireland include US hi-tech giants Apple, Dell, Google and Microsoft.
Alan Ahearne, an economics lecturer at University College Galway, said Ireland was suffering the effects of the unwinding of a property bubble.
"That unwinding is always painful," he said on Monday.
"What I worry about in 2009 is that there will be another big drag (on GDP) from housing and a whole new down-leg on activity coming from the commercial property sector."
Meanwhile the CSO also revealed that Irish GDP grew by 6.0 percent last year, which was upwardly revised from the previous growth figure of 5.3 percent.
The final annual figures also showed that GNP grew by 4.1 percent in 2007 compared to the preliminary figure of 4.5 percent. In 2006, GDP and GNP grew by 5.7 percent and 6.3 percent respectively.