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The economy of Ireland shrank by 7.5% in the last quarter of 2008 compared to the same period a year previously, according to official statistics. The decline is the worst in decades. For the entire period of 2008, the economy contracted by 2.3%, the first loss since 1983.

The construction industry has suffered badly as a result of the recession, with a 24% fall in output, the largest decline ever recorded. Industrial output plunged at an annualised rate of 12.5%.

Unemployment has also shot up. It currently stands at around 10%, twice as high as the levels reported last year. The economy has also experienced deflation.

Alan McQuaid, the senior economist at Bloxhams Stockbrokers, said that the statistics "highlight the extent of the Irish economic out-turn and the huge task facing the Government in attempting to get the country’s public finances back in order." 

"Quite simply, there is no hope of sorting out our budgetary position by 2013 without economic growth, and we are a long way off that at the moment," McQuaid said, noting that "(...) one has to go back to the 1956-1958 period for the last time we had a decrease of this magnitude."

"(...) As things currently stand, it is not hard to see double digit declines in real GDP over the coming quarters," he said. "The extreme weakness of the economy at this point in time must also raise serious questions marks about the wisdom of the Government’s intention of imposing further income levies on already hard-pressed consumers and PAYE workers. All that can be said is that the outlook for economic output and employment in 2009 are fairly bleak indeed."

The Irish government is creating an emergency budget, due to be unveiled in April.