Economic growth in the Republic shrank by 1.5 per cent between January and March this year as house building slowed sharply, figures released by the Central Statistics Office today showed.
Growth rates for the Republic for the first three months of the year showed that Gross Domestic Product (GDP) contracted 1.5 per cent, while Gross National Product (GNP) - which excludes the profits of multinational companies - rose by just 0.8 per cent.
Year-on-year, GDP growth has decelerated from 8.7 per cent in the first quarter of 2007 to -1.5 per cent. Similarly, GNP growth has slowed from 6.5 per cent to 0.8 per cent over the period.
Austin Hughes, chief economist with IIB Bank said while the figures indicated weak growth they were “probably not quite as poor as had been feared”.
He said the GNP data – the more commonly used definition of domestic activity – “keeps open the prospect of marginally positive economic growth this year”.
The CSO Quarterly National Accounts data also show that consumer spending was 3.5 per cent higher in volume terms compared with the same period in 2007.
Mr Hughes said this was “surprisingly” strong with spending on services offsetting a weakening in retail expenditure.
He noted that a significant element of this was spending on overseas travel with Irish people spending almost 30 per cent more on travel in the first quarter of this year than a year earlier.
The main drag on the economy was the slowdown in house building and Mr Hughes noted that this was 30.4 per cent lower than a year earlier.
He identified foreign trade as an emerging area of concern with exports and imports showing weak increases of just 0.5 per cent and 0.7 per cent respectively.
Looking forward Mr Hughes said an “increasingly powerful combination of unfavourable factors” were bearing down on the Irish economy. This includes the weakening US and UK economies and the continuing strength of the euro against the currencies of these countries.
Rising commodity prices and the slowdown in property sales have squeezed household finances and hurt tax revenues, he said.
On the basis of current estimates Mr Hughes believes Ireland "may just avoid a technical recession", but added that a fall in spending power and further job losses could lead to a recession under the definition of two successive quarters of negative growth.
The CSO’s annual figures indicate a steady deterioration in the rate of economic expansion over the last 12 months, led in part by the sharp contraction in new house building where output was 16.4 per cent lower at the end of the first quarter this year compared with 12 months ago.
Overall industrial output, including construction, fell by 5.2 per cent over the same period.
Due to a restating of its data for 2007, the CSO today revised downwards the national balance of payments deficit for the end of that year by over €1 billion to a record of more than €10 billion.
The balance of payments measures the value of trade between Irish resident persons or companies and the rest of the world.
In the first quarter of the year, the balance of payments deficit of €3.6 billion was largely unchanged compared with that of the first quarter of 2007.
In a separate report released today the CSO noted that Government spending grew by over 10 per cent in 2007, the highest rate of increase in five years.
National Income and Expenditure data for 2007 shows that the Republic was now receiving less and contributing more to the EU. Last year the Republic paid €519 million in EU taxes, the highest in five years. However, more than €1.43 billion in subsidies were received, the lowest in five years.
Gross national income at current prices at the end of last year was €162.1 billion.
