Wednesday 20 September 2017

State targets in doubt after slump in first quarter

IMF chief Christine Lagarde. Photo: AP
IMF chief Christine Lagarde. Photo: AP

Brendan Keenan and Donal O'Donovan

ECONOMIC forecasts for this year and next were thrown into doubt last night after official data showed a sharp contraction in the first three months of the year.

Although revised figures for 2011 kept the economy out of a technical recession, the first-quarter slump threatens the targets in the EU/IMF bailout programme, analysts said.

The news was revealed accidentally just as officials from the European Union, the IMF and the European Central Bank (ECB) -- the so-called troika -- prepared to complete their seventh monitoring mission in Ireland.

The Central Statistics Office said its national accounts figures for the first quarter were "inadvertently published on our website for a 15-minute period.

"Notwithstanding this, CSO has decided to adhere to its pre-determined release time," it said.

The data are scheduled to be released this morning. The brief glimpse yesterday showed growth last year was better than previously thought, but the contraction from January-March was worse than most forecasters expected.

Output of goods and services (GDP) slumped by 1.1pc in the first quarter, the figures showed. National income, which deducted payments to foreigners, fell 1.3pc.

But the previous estimate of a 0.2pc fall at the end of last year was revised upwards to 0.7pc growth. This resulted in the full-year growth for 2011 being doubled to 1.4pc, bringing Ireland up to the eurozone average.

Harder

But the data shows the economy remains in danger with fears growing that a weak start to this year makes it harder to meet the official forecasts for this year and next, on which the budget targets depend.

The troika is expected to find that Ireland met the targets to June, although it has already warned of threats to economic growth. GDP is slated to grow 0.5pc this year, rising to 2pc next year.

The blunder, and questions over the sustainability of the national finances in the teeth of a worsening global outlook, now threaten to overshadow the end of the troika mission.

Up to last night, the mission had been regarded as uneventful by troika officials; a welcome contrast to the parallel visit to Greece held in recent weeks.

As well as examining macro economic policy issues the troika have met widely with government officials on the latest trip to discuss policy and reform, but the economy may now return to centre stage.

"The danger is that 2013 will be much weaker than forecast in the programme. That looks for growth of 2pc but based on these figures, and the general slowdown in the world economy, that may not be achieved," said Alan McQuaid, economist at Merrion Stockbrokers.

"The question is whether they do more correction to try to meet the targets. I think that would be the wrong approach."

Progress on the plans to sell Bord Gais, a new restructuring plan for Permanent TSB and Ireland's re-engaging with the bond market, were all on the agenda during the visit that ends today.

The team from the EU/IMF and ECB are understood to have quizzed the heads of all of the main banks, as well as officials from NAMA and the NTMA over the past week, as they ticked off progress on around 100 conditions and measures set out in the bailout pact.

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