Ireland Facing Double Dip Recession

The Irish economy unexpectedly shrank in the second quarter of this year according to official figures released last week.

It raises the spectre of a double-dip recession in Ireland, although Finance Minister Brian Lenihan insists that the economy is "not shrinking".

The figures from the Central Statistics Office show gross domestic product (GDP) contracted by 1.2% compared to same quarter in 2009.

GDP rose 2.2% in the first quarter of the year.

Gross National Product (GNP), which excludes the profits made by multinationals, also fell but by just 0.3%.

The figures put Ireland at odds with the rest of Europe, where GDP grew by around 1% during the quarter.

Greece was the only other economy to register a contraction during the period.

Exports are continuing to perform strongly - they reached a new all-time high during the second quarter.

But domestic demand, and in particular private consumption (spending by households on goods and services) continued to fall.

The figures increased pressure on the government, which is planning to find at least €3bn in further cuts in December's budget.

Austerity measures in three other budgets in the past two years were sold to the public as the tough but necessary medicine.

But further cuts will be a harder sell - because there is little evidence that the measures are leading to economic recovery.

However, Mr Lenihan insists the government is following the correct strategy.

"The figures show that the economy bottomed out last year in the fourth quarter," he said, "In 2009, our GDP fell by 8%. This is a very substantial reduction."

"There are very, very few economies in economic history that have moved from an 11% fall to a position of stabilization in a period of one year. This is a remarkable turnaround and it is important that we bring it to the attention of potential investors.

"Exports are growing. New order books are expanding and business confidence has improved markedly since last year. Tax revenues are stabilizing, public expenditure is under control and our budget deficit will shrink next year."

But not everyone is convinced.

David McWilliams - a high profile and popular economist in Ireland - said for him, it was "like watching a slow car crash".

"The more they cut, the more the economy will continue to stagnate," he said, "The Irish government seems to think they can emote the economy to life by sloganeering, but people who don't understand economics have taken over"