By Padraic Halpin
DUBLIN (Reuters) - Irish retail sales and property prices showed signs of stabilization last month, with data on Friday suggesting the economy may have performed better in the second quarter after falling back into recession.
The economy unexpectedly slid into recession late last year and continued to contract in the first quarter, according to data this week that dented European hopes that Dublin would show some rewards for its tough austerity policies.
Retail sales, which fell sharply in the first quarter after two successive quarters of growth, grew month-on-month for the second month in a row in May, albeit at just 0.1 percent and consumers remained more reluctant to part with their cash than they were a year ago.
House prices also grew again after a poor start to the year and the data followed figures earlier this month that showed Irish goods exports returned to annual growth in April after collapsing in the first quarter.
"Today's figures point to Q2 being a bit better," said KBC Ireland economist Austin Hughes, who trimmed his growth forecast for this year to 0.7 percent from 1 percent after Thursday's grim data showing Ireland was in recession.
"The economy didn't collapse of late, it is still struggling forward. The numbers we're seeing are consistent with an economy that may be struggling to build momentum but is probably still marginally moving forwards rather than backwards."
Ireland is still likely to exit an EU/IMF bailout at the end of the year, having met nearly all its funding needs through 2014 with a limited return to debt markets, but the government's boasts about a resilient economy have taken a battering.
While a slowdown among Ireland's trading partners has been evident in export figures since late last year, new data has shown that consumer spending between January and March recorded its worst quarterly fall since records began in 1997.
The government, which is targeting economic growth of 1.3 percent this year, had predicted that consumer spending would increase in 2013. It revised up its forecast for the domestic economy in April on the back of stabilizing house prices and an unemployment rate at its lowest level in three years.
That forecast now looks unrealistic even if there is a general improvement in the second quarter, and central bank data on Friday - showing lending to Irish households fell at its sharpest rate since 2010 - highlighted just how fragile the economy is.
The poor growth figures have re-ignited a debate over cost-cutting in Ireland as the government prepares for its seventh austerity budget in five years in October, a 3.1 billion euro package of a similar order to this year's dose of cuts and tax hikes.
"Ireland's policy of austerity is exactly like bloodletting, and history will recognize it is just as barbaric," Stephen Kinsella, an economics lecturer at University of Limerick, wrote in a newspaper column.
(Additional reporting by Sam Cage; editing by Stephen Nisbet)