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Irish Economy Still Contracting

3/26/2011

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Irish GDP fell by 1% in 2010.  This decrease in GDP is worse than was forecast by the Department of Finance for the most recent budget and worse than the ESRI predicted in their Winter Quarterly Economic Commentary.  This has negative implications for Irish debt to GDP ratio and is a continuing sign of the still struggling Irish economy.

It would appear that the main cause of the decline has been the domestic economy with domestic consumption falling 3.4%, investment falling 29.4% and government expenditure falling 6.2% in 2010.  These figures show the continuing decline in the domestic sectors of the Irish economy.  The fall in GDP would have been much worse had it not been for the success of Irish exports.  Exports have risen 9.4% in 2010 while imports have only risen 7.4%.  Our net exports for 2010 have increased.

From these figures it is clear that Irish export success has been masking the worrying decline in the domestic economy.  However, a substantial component of Irish exports is comprised of the exports of multinational, not indigenous Irish, companies.  These multinational companies are mainly in the areas of software and pharmaceuticals and chemicals.  This makes our export success, the only positive story in our economy, dependent on a relatively small number of sectors which are subject to potential outside shocks.  If, for example, cooperation tax were to be increased would these companies still remain in Ireland?  It is hard to envisage that they would stay.  And if these companies were to leave and exports were to suffer this would have further negative implications for Ireland’s economic recovery. 
1 Comment
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6/13/2012 02:35:02 pm

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    Justin Doran is a Lecturer in Economics, in the Department of Economics, University College Cork, Ireland.

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