(AFP) – Sep 25, 2008
DUBLIN (AFP) — Ireland on Thursday became the first eurozone member to fall into a recession since the US subprime home loan crisis sparked a global economic slowdown, official data showed.
Ireland's economy, rocked by a domestic property market meltdown, entered recession for the first time in 25 years after shrinking in the second quarter of 2008, the Central Statistics Office (CSO) said in a statement.
European neighbours Britain, France, Germany, Italy and Spain sit on the brink of recession amid global economic turmoil. Denmark, which is not in the eurozone, fell into recession -- two successive quarters of negative growth -- earlier this year.
"Ireland is definitively in recession: the first euro area country to be so," said Barclays Capital analyst Julian Callow.
Irish gross domestic product (GDP) shrank 0.5 percent in the second quarter of 2008 compared with the previous three-month period when the economy contracted 0.3 percent, according to the CSO.
The "Celtic Tiger" economy has not experienced a recession since 1983.
"We expect that Italy and quite possibly Germany will also record contractions in their third-quarter GDP, following contractions in the second quarter -- with a substantial risk that France does as well -- so Ireland is unlikely to be alone in entering the euro area 'recession club,' Callow said.
"As Ireland recovers from a major construction melt-down and surging unemployment, it seems likely to continue to experience further negative quarters ... perhaps into 2009," he added
Ireland has in recent years been described by analysts as the "Celtic Tiger" economy because of its prolonged period of double-digit growth in the 1990s, which placed it among the richest nations in Europe.
However, it has been hammered by the international credit crisis, a severe property and construction industry downturn, weak consumer spending, sky-high oil prices and the strong euro.
Howard Archer, at the Global Insight consultancy in London, said it was not a shock that Ireland had lost its roar.
"It was no surprise that Ireland contracted again in the second quarter as a wide range of indicators had been extremely weak -- be it relating to the service sector, manufacturing, consumer confidence and retail sales," he told AFP.
"Clearly, the housing market and construction downturns are having a major depressing impact on Irish economic activity, on top of wider European problems including the strong euro, elevated oil, commodity and food prices, the financial sector turmoil and slowing global growth," he said
"I think the downturn has been more severe in Ireland than in other European countries but I think an increasing number will join Ireland in recession, including the UK, Spain and Italy.
"Technical recession is also very possible in both Germany and France," Archer added.
The CSO said Thursday that Ireland's economy also contracted on a 12-month basis in both the first and second quarters of 2008.
"In the second quarter of 2008, GDP decreased by 0.8 percent at constant prices compared with the same period in 2007," the CSO said in its statement.
"This is the second successive quarter in which GDP showed a decrease compared with the same quarter of the previous year."
The economic growth rate had plummeted to minus 1.3 percent in the first quarter of 2008 on a 12-month basis, the CSO added -- a slight revision from the previous estimate of minus 1.5 percent.
"In the first few months of the year the weakness in residential construction activity was the main culprit, with investment activity down almost 20 percent," noted Dr Ronnie O'Toole, chief economist at the National Irish Bank in Dublin.
"This has now been joined by much weaker consumer spending, which contracted in the second quarter.
"Consumers went on strike around Easter and this drop off in sales is evident in the figures released today."
Irish think-tank, the Economic and Social Research Institute forecast, forecast earlier this year that the economy would plunge into recession in 2008 for the first time in 25 years.
Key US companies with bases in Ireland include hi-tech giants Apple, Dell, Google and Microsoft.
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