Ireland dropped back into recession at the end of 2011, government statisticians reported Thursday, in a worrying sign for the country's efforts to emerge from an international bailout.
The Central Statistics Agency said gross domestic product fell 0.2 percent in the October-December quarter. That came on top of a 1.1 percent decline in the previous quarter, putting Ireland in a new recession, technically defined as two consecutive quarters of contraction.
Gross national product — a measure many economists prefer to use for Ireland because it excludes the exported profits of multinational companies — fell by a much sharper 2.2 percent. That followed a GNP fall of 1.9 percent in the third quarter, suggesting a much harsher recession for Irish households and businesses.
For 2011 as a whole, Irish GDP grew 0.7 percent but underlying GNP fell 2.5 percent. Irish GDP had fallen for three straight years: 3 percent in 2008, 7 percent in 2009 and 0.4 percent in 2010.
Ireland needs to revive economic activity to boost employment and tax collections, and thereby reduce its yawning budget deficits. Despite imposing four straight years of tax hikes and spending cuts, Ireland still is expected this year to collect just €38 billion ($50 billion) in taxes while spending €56 billion.
Finance Minister Michael Noonan said Ireland was negotiating with the European Central Bank to reduce Ireland's spending by €3.1 billion this year by deferring, until 2025, a repayment of a bank-bailout IOU due March 31.
"The details of the arrangement ... are being worked out," Noonan told lawmakers.
But talks Thursday between Irish and ECB officials in Frankfurt produced no agreement, only a promise of further talks.
Ireland is seeking to renegotiate a 2010 agreement that requires Ireland to pay out more than €47 billion to creditors of two failed nationalized banks, Anglo Irish Bank and Irish Nationwide, in annual installments concluding in 2031. Noonan says Ireland wants the ECB to let Ireland avoid this year's payment by instead accepting an Irish government bond as collateral. The Irish want the ECB to accept the bond and provide the €3.1 billion itself.
Since early 2011, the Irish government has paid its bills thanks only to a €67.5 billion ($90 billion) credit line supplied by the European Union, ECB and International Monetary Fund. Ireland hopes to restore its credit rating and resume normal borrowing from bond markets before its bailout funds run dry in late 2013.
As part of the bailout deal, the international lenders expect Ireland to cut its deficits to 3 percent of GDP by 2016. The deficit in 2011 was 10 percent and the government is aiming for 8.6 percent this year.
But the target presumes Ireland can achieve 1.3 percent growth in 2012, a forecast that few economists think is credible.
Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, said he expects GDP to grow just 0.5 percent in 2012 and GNP to fall further as consumer spending declines for a fifth straight year. Consumer spending fell 2.7 percent in 2011.
He cautioned that predicting Ireland's growth is difficult because the country is exceptionally exposed to economic trends outside the eurozone in Britain and United States, its two major trading partners.
Economists agree that whatever economic growth Ireland is managing at present is being driven by high-tech multinational exporters, particularly 600 U.S. companies concentrated in information technology, software, microchips, social media and pharmaceuticals. Their current healthy performance tends to distort Ireland's growth figures, because Ireland permits the foreign companies to export their profits to home base without penalty.