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Should we be concerned about the economic downturn in Ireland?

Yesterday's news that the Irish economy, measured by gross domestic product, fell by 1.2% in the second quarter of 2010 shocked many investors. Even though it was common knowledge that the Irish economy was struggling, due to the property sector and financial sector crashes, nobody quite expected a return to a shrinking economy so soon. So should we be concerned about the economic future of Ireland?

While there is obvious cause for concern, with news about the economy shrunk in the second quarter of 2010, it is too soon to call an inevitable double dip recession in Ireland. However, there are other economies within Europe that are also struggling and if one were to collapse, and there is no certainty this will be Ireland, then we could see others fall in a domino effect. As a consequence the EU/IMF will be looking to move in quickly if the Irish economy does downturn further and the real risk of a double dip recession becomes relevant.

Interestingly, national debt as a percentage of Gross Domestic Product in Ireland is less than that of the UK and some other European countries but it is the weakness in the financial sector which is perhaps the main reason for the concerns.

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