RBS chief Hester insists Ireland has turned corner
But economy slides into recession again
Britain's most powerful banker Stephen Hester, chief executive of RBS, which owns Ulster Bank, told investors last week that Ireland's economy is turning as new figures show the country slipping into recession again.
"I think the final area is to have greater confidence that the turn has been seen in Ireland which, as everyone knows, has been a source of considerable losses to a number of banks, including ourselves. We have seen the turn, if you like, in our non-core parts of Ireland. We did not see that yet in core," he told a Morgan Stanley conference last week.
"We are optimistic that 2013 could see a decisive turn in Ireland. There are various green shoots that encourages this, but, of course, we're only two months into the year. So, this will be an important thing to watch as we go through this year."
Mr Hester's shout out for the Irish market comes as new data shows that the economy slipped into a "double-dip" recession in the second half of 2012 following two quarters of negative growth. Economic growth in the second quarter of 2012 was revised downwards to minus 0.4 per cent.
"This means the economy suffered two quarters of negative growth in H2 2012 and is technically back in recession," according to Davy stockbrokers.
The eurozone crisis – exacerbated by last week's drama in Cyprus – has hit demand in key export markets. Exports grew by two per cent in the year to Q4 2012, compared with a growth of 5.1 per cent in 2011. This slowdown was only slightly offset by an improvement in domestic demand, which rose by 0.5 per cent last year – the first increase since 2008. Annual GDP growth was zero in the last three months of 2012 – the slowest pace since the start of 2011.
The sudden slowdown in the economy has now put growth forecasts under pressure. "This poses a risk to our forecast for 1.3 per cent GDP growth in 2013, a little higher than the 0.9 per cent recorded in 2012," according to Davy.
"However, several temporary factors may have pushed down on goods exports and industrial production in Q4, including the pharmaceutical patent cliff. There remains the possibility that domestic demand could pick up more strongly than the flat growth we had forecast for 2013.
The Cypriot financial crisis and dramatic proposals to burn depositors by seizing part of their savings are likely to hit eurozone confidence further, leading to delays in investment and consumer spending, which will further impact on Ireland's exports.