FIGURES RELEASED yesterday show that the economy was weaker than previously thought in 2010. Among other things, the data raise further questions about how the banks are being stress tested and make the task of stabilising the public finances more difficult.
In 2010 the economy shrank by all main measures when compared to 2009, according to figures released yesterday by the Central Statistics Office (CSO).
By the widest measure of the size of the economy – gross domestic product (GDP) – the contraction was 1 per cent.
Under the scenarios for its stress testing of the banks, published last week, the Central Bank believed that in a worst-case scenario, GDP would shrink by 0.2 per cent last year. This may raise questions about the credibility of the stress-testing process.
Stress tests on the banks last year failed to restore confidence in the financial system because they were based on assumptions that proved to be excessively optimistic.
The new figures also mean that the budget deficit and public debt rose when expressed as ratios of GDP. This will make stabilising the public finances more difficult and raises further doubts about the capacity of the State to manage its debts.
According to the CSO figures a larger than expected decline in GDP, of 1.6 per cent, was recorded in the final quarter of the year. This brought quarterly GDP to its lowest point since the end of the boom and back to levels of late 2004.
This reflected weak business and consumer activity during a period in which 16,000 jobs were lost and Ireland was bailed out by the EU and IMF.
By contrast, gross national product (GNP) as a measure of economic activity recorded growth of 2 per cent in the final quarter compared to the third quarter. This measure differs from GDP in that it excludes a number of international transactions, most notably foreign firms’ repatriated profits.
A further set of figures also published by the CSO were more positive. Irish residents’ payments to and from other countries returned to near equilibrium last year.
In 2010, the deficit on the balance of payments was just over €1 billion. As recently as two years earlier the figure was almost 10 times larger. This contraction suggests that the economy has regained much of its lost competitiveness.
The figures also showed that Irish services exports had another banner year, reaching a high of €73.3 billion.
Exports of business and computer services also expanded. These are the largest services exporting sectors and both registered new records last year. Financial services and insurance also recorded solid growth in exports.
By contrast, tourism endured its worst year in a decade.