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Record decline hits Irish economy Record decline hits Irish economy
(about 3 hours later)
The Irish Republic's economy has suffered its largest contraction in recent decades.The Irish Republic's economy has suffered its largest contraction in recent decades.
The economy shrank by 7.5% in the last three months of 2008 compared with the same period a year earlier, the official statistics office said.The economy shrank by 7.5% in the last three months of 2008 compared with the same period a year earlier, the official statistics office said.
The construction industry, which has faced a housing market slump, suffered a 24% fall in output, the biggest fall on record.The construction industry, which has faced a housing market slump, suffered a 24% fall in output, the biggest fall on record.
In the whole of 2008 the economy shrank by 2.3%, the first decline since 1983.In the whole of 2008 the economy shrank by 2.3%, the first decline since 1983.
Once known as the Celtic Tiger due to the strong growth it enjoyed more than a decade ago, Ireland has experienced a sharp downturn, becoming the first eurozone country to fall into recession in 2008. Once known as the Celtic Tiger due to the strong growth it enjoyed, Ireland has experienced a sharp downturn, becoming the first eurozone country to fall into recession in 2008.
We are of the view that GDP is set to decline in the order of 6.5% for the current year Deirdre Ryan, Goodbody StockbrokersWe are of the view that GDP is set to decline in the order of 6.5% for the current year Deirdre Ryan, Goodbody Stockbrokers
The declines announced by the Central Statistics Office (CSO) were significantly larger than had been expected.The declines announced by the Central Statistics Office (CSO) were significantly larger than had been expected.
"The sharp acceleration in downward momentum that gripped the global economy in the final months of 2008 is evident in the growth [figures] for the Irish economy," said Deirdre Ryan, economist at Goodbody Stockbrokers in Dublin.
Analysts are now expecting Ireland's economy to shrink by much more than expected in 2009.Analysts are now expecting Ireland's economy to shrink by much more than expected in 2009.
"We are of the view that GDP is set to decline in the order of 6.5% for the current year... given the extent of the downward momentum at the turn of the year as evidenced by today's data," Deirdre Ryan said. "We are of the view that GDP is set to decline in the order of 6.5% for the current year... given the extent of the downward momentum at the turn of the year as evidenced by today's data," said Deirdre Ryan from Goodbody Stockbrokers.
Ireland's deteriorating economy has hit public finances hard. Housing market collapse
Analysts suggest Ireland is having a tougher time than most during the recession because added to the general economic crisis it is also dealing with a dramatic collapse in house building.
Irish homes built 2006: 90,0002007: 77,0002008: 45,0002009: 20,000 (estimate) Source: Construction Industry Federation
During the housing boom in 2006, house building accounted for 15% of Irish GDP.
"At its peak in 2006 90,000 dwellings were built. That was clearly at an unsustainable level," said Dr Alan Barrett from economic think tank ERSI.
In the last 12 months it is estimated only half that amount were built.
"We had hoped the market would gently decline but it essentially evaporated between 2007 and 2008," said Dr Barrett.
Problems for the construction industry are getting worse because of a lack of government funding for public infrastructure projects, according to Cathal Lee, a spokesperson for the construction industry in Ireland.
"The decline was first felt in the residential sector. It has now spread to commercial developments and to general contracts and projects like schools and hospitals," he said.
Ireland's deteriorating economy has also hit public finances hard.
Ireland's budget deficit is expected to reach 9.5% of GDP in 2009, the highest in the EU and far above the EU rules of 3%.Ireland's budget deficit is expected to reach 9.5% of GDP in 2009, the highest in the EU and far above the EU rules of 3%.
The country is also suffering from deflation, which could pose a big risk for the economy because it encourages people to defer purchases in the hope of getting them cheaper later on. Unemployment has nearly doubled, too. At the start of 2008 it was running at 5%. It is now more like 10%.
The country is also suffering from deflation - a period of falling prices - which could pose a big risk for the economy because it encourages people to defer purchases in the hope of getting them cheaper later on.
People are being very careful with their money according to Sean Murphy, director of policy at Chambers Ireland, which represents 13,000 businesses.
But he is remaining positive believing the decline in sales is "indicative of the flexibility of Irish society and their willingness to drive down debt and increase their personal savings".