Ireland's economy showed further signs of weakness on Friday from faltering manufacturing and retail sales data following on from revelations earlier this week that taxpayers may have to fund a multi-billion-euro bailout of Anglo Irish Bank.
REUTERS - Ireland's brief economic upturn showed further signs of petering out on Friday, with weak manufacturing and retail sales data giving Prime Minister Brian Cowen little comfort ahead of a savage round of budget cuts.
Already the most unpopular Irish leader in modern history, Cowen's currency has been further devalued by revelations this week that taxpayers will have to foot a bill of up to 50 billion euros for cleaning up years of reckless lending during the "Celtic Tiger" era.
An Irish Times/Ipsos MRBI poll on Friday showed 61 percent of voters think Cowen should resign before elections which are due in 2012 but likely to be held before then.
Ireland officially exited two years of recession in the first quarter of 2010 before shrinking again in the following three months. Friday's PMI data suggested the third quarter did not look much better.
The NCB Purchasing Managers' Index, which measures the Irish manufacturing sector, fell sharply to 48.4 from 51.1 in August, dipping below the 50 mark separating growth from contraction for the first time since February.
Separate data showed retail sales rose 1.3 percent in August from a year ago. However, after stripping out volatile car sales the sales volume was 1.4 percent lower than in August 2009.
"If PMIs are weakening elsewhere, they are going to weaken in Ireland as well so we could see growth weaken again in Q4. What were are seeing here is an uneven recovery of activity," said Oliver Mangan, chief bond economist, at AIB.
Cowen must unveil a four-year budget plan next month and push through a tougher 2011 budget than the 3 billion euros of adjustments originally planned to reassure investors Ireland will not need external assistance to see it through its crisis.
Only a growing economy will generate the tax revenues Ireland needs, alongside spending cuts and tax hikes, to reduce a debt mountain that the bank bailout will swell to 99 percent of GDP this year from 25 percent prior to the crisis.
The bank rescue will also blow the budget deficit out to a one-off 32 percent of economic output this year, more than 10 times the EU's 3 percent cap and by far the worst in the union.
So far Ireland has managed to calm investor fears it will go the way of Greece, which suffered a debt meltdown that forced it to turn to its European Union partners and the International Monetary Fund for help.
IMF chief Dominique Strauss-Kahn said in a German newspaper he does not expect the euro rescue fund to be activated for Ireland, adding his voice to a clutch of policymakers who made the same prediction the previous day.
The premium investors demand to hold Irish 10-year debt over benchmark German bunds narrowed again to 425 bps on Friday, down from a euro lifetime high of 475 bps earlier this week, amid relief that Ireland had at least come clean about the size of its problem.
The EU's Competition Commissioner Joaquin Almunia said he welcomed Ireland's banking plan and said proposals for winding down nationalised lender Anglo Irish addressed competition concerns. As Cowen works out where to squeeze savings after three austerity budgets in two years, a senior EU official signalled that Ireland's low rates of tax, which have been one of the biggest factors in attracting large flows of foreign investment and a source of resentment in other European states, could be at risk.
"In the coming decade -- it's a fact of life that after what has happened -- Ireland will not continue as a low-tax country but it will rather become a normal tax country," Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels.
Cowen may only have a few months left to cede to EU's budget demands with his wafer-thin majority in parliament almost certain to be wiped out once by-elections are held to fill three lower-house seats in the first four months of next year.
Date created : 2010-10-01