Ireland achieves 7.7% growth in wake of debt crisis
Rapid growth of economy helps pare deficit
Ireland's economy is growing at a rapid pace last experienced at the tail-end of the Celtic Tiger boom, government statisticians reported Thursday as economists declared that the country's debt crisis was dead and buried.
The report from the Central Statistics Office said gross domestic product grew 7.7 per cent from July 2013 to June 2014, the biggest annual rate of growth since early 2007. It said quarterly GDP rose 1.5 per cent versus the January-March quarter.
Finance Minister Michael Noonan said the figures suggested that Ireland would record around 4.5 per cent GDP growth this year, accelerating the country's escape from debt woes that forced it to take a 2010-2013 international bailout. Earlier this year, Noonan forecast growth of just 2.1 per cent.
Credit ratings rising
Ireland has already resumed borrowing normally and its credit ratings are rising, as evidenced by Thursday's treasury sale of three-month debt securities at an effective interest rate of zero per cent. The faster Ireland's economy grows, the more easily and cheaply it can refinance its debts on bond markets.
"These latest numbers are gangbusters," said Alan McQuaid, chief economist at Merrion Stockbrokers in Dublin, who expects Ireland to post the best growth figures this year in the 18-nation zone that uses the euro currency. He said Ireland's unusually strong exposure to Britain and the United States, its two biggest export markets, was driving improvements.
Noonan said he still intends to impose further cuts, on top of a new water tax being rolled out nationwide this month, to reduce Ireland's 2015 deficit below the eurozone limit of three per cent of GDP.
A bigger-than-expected GDP figure will make it easier for Ireland to achieve its deficit targets, because it means the country can carry higher levels of deficit spending and still meet, or exceed, its targets relative to the unexpectedly large size of an expanding economy. It also means stronger than expected tax collections and lower costs on welfare payments as the employment market recovers.
Deficit hit record in 2010
Ireland had been forced to flee the bond markets and seek emergency loans from European Union partners and the International Monetary Fund in 2010 as its deficit soared over 32 per cent, a European Union record, amid declining growth and overwhelming bank-rescue costs. The rapid Irish turnaround has confounded critics of austerity who have argued that a country cannot cut its way to economic recovery.
Ireland's lobbying group for employers, the Irish Business and Employers Confederation, called on Noonan to minimize further austerity measures and provide tax breaks in his 2015 budget being unveiled next month.
The group's chief economist, Fergal O'Brien, said Thursday's unexpectedly strong growth figures demonstrated "that our great recession can be consigned to the history books."
He argued that Ireland — which has imposed six straight years of austerity budgets since its credit-fueled property bubble burst, driving Irish banks and eventually the government to the brink of insolvency — "does not need any additional austerity measures to fix the public finances. It needs to keep a steady hand on expenditure, but has the capacity to cut taxes on budget day."
Irish unemployment has been slowly declining from a 2012 peak of 15.1 per cent and today stands at 11.2 per cent, a six-year low.
Noonan said he would offer budget incentives to generate jobs and woo back university-educated 20-somethings, who have been emigrating in their tens of thousands annually since the decade-long Celtic Tiger boom collapsed in 2008. But he ruled out a generous budget because he didn't want to fuel another bubble economy.
Conall Mac Coille, chief economist at Davy Stockbrokers in Dublin, cited the breadth of growth as a particular reason for optimism.
"Every part of the economy — the export sector, construction, consumer spending — it's all picking up together and that's giving you these really strong growth rates," he said.