THE IRISH economy unexpectedly contracted in the second quarter of the year, with gross domestic product (GDP) falling by 1.2 per cent compared with the first quarter.

In the euro area, Greece was the only other economy to register a contraction of its economy in the second quarter.

Aggregate GDP shows that the euro area grew by 1 per cent quarter on quarter.

Figures from the Central Statistics Office, released yesterday, show gross national product (GNP) also contracted, but by just 0.3 per cent on the quarter. Unlike GDP, GNP excludes foreign-owned enterprises’ repatriated profits and interest payments to foreign entities. Both figures are adjusted to smooth out the effects of seasonal factors.

GDP in the second quarter was slightly above its low point, reached in the final three months of 2009. GNP continues to plumb new depths. In the second quarter it fell to the lowest level in almost seven years.

The divergence between the domestic and export sides of the economy, in evidence since the beginning of the recession, became more marked in the first half of the year.

In the second quarter, exports grew from the already very high level in the first quarter, to reach a new all-time high. In the April-June period, the volume of goods and services sold to the rest of the world surpassed the previous peak, recorded in the final quarter of 2007.

The divergence between exports and domestic demand widened further in the second quarter (domestic demand includes private and public consumption, investment spending and changes to stocks). Positively, however, domestic demand expanded slightly.

Private consumption, which measures spending by households on goods and services, continued to fall in the second quarter.

Private consumption accounts for more than half of GDP. It fell by 0.2 per cent quarter on quarter in the April-June period.

Public consumption, which measures non-capital spending by all branches of government, contracted by 0.8 per cent compared to the first three months of the year. This was fully expected as austerity measures took their toll.

Public consumption accounted for 16.5 per cent of total GDP. This was up from 15.1 per cent at the beginning of 2007 because the wider economy has shrunk by more than the public sector.

Fixed capital formation rebounded, albeit from a very low base. The construction industry appears to be close to the bottom and there are indications that businesses are spending more on plant and machinery.

Imports of foreign goods and services rose in the second quarter, reflecting better domestic demand conditions and the booming export sector’s fast growing need for imported inputs.

Imports grew by 4.5 per cent quarter on quarter, the third consecutive quarter of growth. Despite this, import levels remain almost a tenth below their previous peak, registered in the final quarter of 2007.

Compared to the same quarter in 2009, GNP was down 4.1 per cent. GDP was 1.8 per cent lower.