Recession to last 'well into 2009'

Ireland's recession will last at least 12 months, the country's leading think-tank predicted tonight.

As new figures reveal the country's once aggressive Celtic Tiger economy contracted by 1% in the first half of the year, a top economist warned the Government's biggest challenge was stemming spiralling unemployment.

Dr Ide Kearney of the Economic and Social Research Institute (ESRI), who predicted the recession earlier this year, blamed the crisis on the crumbling housing market.

"I think it's quite clear that this is going to last well into 2009 now," Dr Kearney said.

In an effort to limit the impact of the recession, Taoiseach Brian Cowen has brought forward the traditional December Budget by six weeks.

Mr Cowen, who is attending a United Nations summit in New York, warned painful decisions would be made as the Government attempted to contain the knock-on effects of the now shrinking economy.

Opposition politicians rounded on the Government over the slump, claiming ministers had been caught flat-footed by the downturn.

Fine Gael Finance spokesman Richard Bruton said: "The Government has demonstrated no such leadership and hide their inactivity behind the announcement of an early budget.

"The tragedy is that the Government has been caught entirely flat-footed by these more difficult times.

"Their reckless flirtation with the property bubble has seriously handicapped the Irish economy."

The Labour Party's Joan Burton hit out at Mr Cowen, claiming 46,000 people had lost their jobs since he took office in May.

"This is where 'Cowenomics' has gotten us. This is what the slump coalition has delivered in its 15 months of office," Ms Burton said.

"There is a difficult Budget in prospect in two weeks time. The Minister for Finance has to look beyond bean-counting to put in place a programme for economic recovery to revitalise our economy, create jobs and restore consumer confidence."

National Accounts from the Central Statistics Office (CSO) revealed, as expected, the construction sector took the biggest hit, falling by 12.2% in the three months from April to June.

That followed a 16% drop in the first three months of the year and a 10% drop in house prices in the last year.

The Government is facing a massive budget deficit of between €5bn and €7.5bn - which may take several years to recover - as the tax take dramatically fell this year.

Under fierce criticism, Finance Minister Brian Lenihan admitted the fall in revenues was worse than initially forecast.

The CSO report said the value of goods and services produced by home-grown and international businesses in Ireland - known as Gross Domestic Product (GDP) - fell by 1.3% in the first quarter and again by 0.8% in the following three months.

Two successive falls in economic growth is internationally recognised as a recession.

The report said consumer spending remained strong in the early part of the year, showing 3.6% growth for the first quarter, but the next three months were hit by a drop of 1.4%.

This is a dramatic downturn on the past three years when consumption growth averaged more than 6%.

Unemployment is expected to hit 5.8% in the next year.

Ms Kearney said the crucial next step for ministers was to tackle the rising unemployment figures.

"One of the big issues in an economy that's slowing down as rapidly as the Irish economy is the big increase in unemployment.

"One of the really big issues for the authorities is to try and prevent unemployment running into long-term unemployment."

The ESRI, which is to advise the Government on the economic outlook next week, warned earlier this year that Ireland was facing its first recession since 1983, unemployment would rise and 20,000 people would emigrate.

Dr Kearney added: "Housing is the proximate cause.

"But along with that - which is why the economy is moving into recession rather than just a construction-led dip - we've got quite a big fall in consumption.

"Exports and imports are really slowing down, and that's more worrying because that means it's more general than just housing and investment."