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Fear of fresh recession as consumers stop spending

THE Irish economy is in danger of slipping back into recession, new figures show, as nervous consumers opt to save rather than spend.

The economy shrunk by 1.9pc (GDP) in the third quarter of the year as consumers stayed out of the shops and businesses held off from investing. The recession will have officially returned if the next quarter also shows negative growth.

Apart from exports, virtually every other part of the economy slowed down in the latest quarter, with declines for consumer spending, government spending, investment and imports. GNP for the quarter was down by 2.2pc.

Reaction to the figures on the international markets was muted and Irish borrowing costs actually fell. However, many economists outside Ireland said the country's reputation as a "poster boy" for austerity would be dented.

CSO assistant director-general Aidan Punch said it would be unwise to "over-analyse" figures for one quarter.

He added: "A moving average of the quarterly results is a better guide. The situation there looks more stable. But the moving average shows economic growth around zero and the third quarter results do not change that."

Despite the latest falls, the year-to-date picture is slightly more encouraging, with GDP up 0.7pc on the same period in 2010.

Ulster Bank said it expected GDP growth for the entire year to be around 1pc, up from 0.4pc last year. In 2009, there was a catastrophic fall of 7pc.

While exports remain the one bright spot in the numbers, economists are growing concerned that this performance can't last. In the latest figures, exports were up 0.8pc, but the grim international outlook could erode these gains.

"It is clear that the deterioration in the international economic environment in recent months is impacting on the trends in Irish exports," said Simon Barry of Ulster Bank.

Economists said the reaction of consumers was only to be expected.

"Nervous consumers continue to maintain high levels of saving, giving uncertainty about future prospects," said Davy Stockbrokers.

Among the strong performers were agriculture and fishing (up 15pc) and industry (up 6.8pc). However, building and construction plunged again (down 20.4pc) and the output of the Government was also down (4.1pc).

The drop in businesses investing was a key factor in the performance, although this heading can be unreliable as the purchase of aircraft by airlines is included in this total and so the figures can vary widely from quarter to quarter.

"This fall is most likely erratic and investment spending could bounce back sharply in quarter four," said Davy.

The figures surprised many economists. Before they were released most economists were expecting a decline in GDP of 0.5pc at most. Ireland has some of the most resilient exports in the global economy -- like chemicals and IT equipment -- but a global recession, a so-called double dip, would still lower these export volumes.

Irish Independent