Economy contracts at record rate

The Irish economy contracted at a record rate in 2009, showing the largest decline in output recorded in a single year according to the Central Statistics Office (CSO).

However, Minister for Finance Brian Lenihan said the figures were marginally better than Budget day estimates and said he expected the economy to return to growth in the second half of this year.

Gross domestic product (GDP) for the year was down 7.1 per cent, while gross national product (GNP) fell 11.2 per cent. December's Budget projected a 7.5 per cent decline.

Initial estimates for the fourth quarter of 2009 show a decline of 5.1 per cent in GDP compared with the same quarter in 2008, while GNP fell 10.4 per cent. On a quarterly basis, GDP and GNP were down 2.3 per cent compared with the previous three-month period.

The period was characterised by lower consumer spending, less capital investment and a fall in industrial output. The output of the construction sector fell 32.3 per cent, while distribution, transport and communications dipped 7 per cent.

However, net exports at constant prices were €2 billion higher compared with the same quarter in 2008.

"Today's figures show that the annual pace of decline in GDP slowed considerably as the year progressed.

There was a fall in GDP of 2.3 per cent between the third and fourth quarters. Excluding the impact of the ongoing decline in new house building, GDP was roughly unchanged in the fourth quarter," Mr Lenihan said.

"Internationally in many of our trading partners, there are tentative signs that a modest recovery is underway. The Government have taken actions to ensure the economy is positioned to take advantage of this recovery.”

However, Fine Gael’s finance spokesman Richard Bruton said the recession was not over, and was in fact getting deeper.

“These figures are fresh confirmation that what this country needs now is a new government with the authority and the mandate to address our problems," he said.

"Instead we have a government which is a prisoner of the failed policies of the past, which has no new ideas, and does not have the broad support which is so necessary to bring about recovery.”

Ulster Bank economist Lynsey Clemenger said 2009 was "a horrendous year" for the Irish economy. "While the Q4 numbers were a bit weaker than we had been expecting, the detail of the release is not as unfavourable as the drop in headline growth on the quarter would suggest," he said.

"As was the case with the labour market figures yesterday, we take some encouragement from the fact that there are signs of stabilisation evident in the majority of expenditure categories. While construction-related spending remains a clear laggard, we take particular note of the continued resilience of exports."

Ibec said it was confident the economy would pick up, although recovery would be "muted".

In a separate release today, the CSO said the annual current account deficit reached €4.8 billion, its lowest annual deficit since 2004.

The deficit narrowed by some €4.6 billion compared to last year, with the fourth quarter of the year showing a deficit of €166 million. Merchandise exports of €18 billion were lower by €472 million compared to the previous quarter, while imports were up by almost €600 million.

Services exports, however, were higher, rising €830 million to €18.9 billion in the fourth quarter, driven by rises in computer and business services.

Direct investment income outflows rose almost €900 million to €8.7 billion and inflows fell €254 million to €2 billion.

NCB economist Brian Devine took some positive readings from the news.

"The good news was that the current account deficit continued to narrow and now stands at 0.5 per cent of GNP. We have been continually making the point that the key difference between Ireland and the Mediterranean economies will be Ireland’s ability to run current account surpluses post-2010," he said.