MercoPress. South Atlantic News Agency

“Celtic tiger” becomes first Euro economy in recession

Ireland, better known as the “Celtic tiger” became the first Euro zone economy to slide into a recession as homebuilding and consumer spending continued to slump. GDP contracted 0.5% in the second quarter from the previous quarter which had also shrank 0.3%, according to the Central Statistics Office said Thursday in Dublin.

From a year earlier, the economy lost 0.8%. "Technically we are in a recession", said the report, making her the second European country, behind Denmark, to suffer two consecutive quarter declines. The housing collapse, coupled with the global credit crisis, forced the Irish government to slash spending to keep its deficit in check and pushed the benchmark stock index to fall more than any other in Western Europe this year. Ireland's contraction follows a decade-long boom, sparked by exports in the mid-1990s and then extended by record homebuilding. The economy has expanded around 7% a year for the last decade, three times the Euro zone average. Ireland hasn't had a full-year economic contraction since 1983. Growth in 2007 was above 4% but estimates for this year are in the range of 0.5% or less as the impact of the global financial crisis advances. Home building is plunging as house prices drop and the Bank of Ireland, the country's second-biggest bank, said earlier this month it will slash its dividend by 50% and post a drop in first-half profit as loan losses mount. House prices fell 9.4% in July from a year earlier. The Finance minister Brian Lenihan, said in parliament Thursday that the "poor performance in tax receipts over the summer months" has continued into September. Earlier this month, he brought forward the 2009 budget by six weeks after warning of a ?5 billion shortfall in tax revenue this year. "Ireland is an exceptionally open economy and the deterioration in the global climate has had a major impact" Lenihan admitted "The pace of growth in our main trading partners has slowed" and the Euro increase against the dollar and the pound reduced export competitiveness. According to recent estimates from the EC, Ireland could be followed by similar contractions in the second half of the year in Germany, Spain, France and the United Kingdom.