Irish economy posts shock decline after record debt sale
By Padraic Halpin and Sam Cage
DUBLIN (Reuters) - Ireland's economy contracted by a shock 2.3 percent in the fourth quarter, data showed on Thursday, denting a recovery that picked up steam elsewhere as the country made a successful return to regular bond auctions and sold at record-low yields.
Ireland raised 1 billion euros ($1.4 billion) from 10-year debt in its first auction since September 2010 - before it was locked out of bond markets and hurtled towards an EU/IMF bailout after a property crash led to a deep recession and austerity.
However despite employment growing strongly as Ireland left its bailout in December, the economy declined sharply in the final quarter from the previous three months as imports surged and consumer spending fell, to scupper forecasts for growth.
That meant the economy contracted by 0.3 percent for the year as a whole compared with a government forecast for growth of 0.2 percent. Dublin needs growth of 2 percent from this year on to start reducing one of the highest debt levels in Europe.
"It's the poorest quarter since the final quarter of 2008. The numbers are impossible to square with other indicators," said Austin Hughes, chief economist with KBC Ireland.
"You're still seeing growth in the economy, as evidenced in the jobs numbers. I expect there'll be some upward revisions to these figures. It does suggest the recovery is a little slower and more patchy than previously thought."
Economists polled by Reuters had expected growth of 0.4 percent in the fourth quarter from the previous quarter and full-year growth of 0.3 percent.
Personal consumption fell by 0.6 percent in the final quarter of 2013 compared with the previous three months. Exports rose 2.1 percent and imports climbed 5.8 percent.
Ireland's usually robust export sector also struggled earlier in the year due to the mixed economic picture in Europe and the expiry of patents among the large cluster of drugs companies located in the country.
Growth in the third quarter of 2013 was revised up to 2.1 percent on Thursday to paint a volatile picture that followed recent data that showed unemployment had fallen below the euro zone average to 11.9 percent, house prices were rising and consumer sentiment was near a seven-year high.
NO CERTAINTY
Sustainable economic growth is seen as the final piece of the puzzle for Ireland following the completion of its EU/IMF bailout in December as it looks to show the way to other indebted euro zone states like Portugal and Greece.
After yields on 10-year Irish debt fell to a record low of 3.1 percent on Wednesday, compared with a 2011 peak above 15 percent, the country's debt agency sold Thursday's bond at 2.967 percent, the lowest level ever for 10-year paper.
"It's an absolutely massive deal," said Eamon Reilly, a bond trader at Davy Stockbrokers, a primary dealer in Irish bonds. "An absolute stellar auction."
Dublin is already funded into next year and is aiming to raise 8 billion euros this year to complete pre-funding for 2015, nearly half of which it has already garnered from a 10-year issue in January.
Ireland has been raising debt periodically for over two years, helping it win back its investment-grade rating from Moody's earlier this year to open up it's already sought-after bonds to investors prohibited from buying junk-rated paper.
Ratings agencies have also cited the growth potential of Ireland's open economy in a series of upgrades and some of the country's largest listed companies expressed confidence last week that the upturn was sustainable.
However despite seeing growth in property and recruitment advertising, Ireland's largest media group, Independent News and Media , struck a more cautious note on Thursday after seeing its revenue fall again last year.
"While we do see a turn in the Irish economy, we would like to see that broadly sustained and broadly based before we call it. There's no great certainty in terms of how the Irish economy is going to perform," INM Chief Executive Vincent Crowley told Reuters.
(Editing by Pravin Char)
