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Ireland's economy shrank for the first time in more than a decade in the quarter through March as a housing-market slump curbed investment and exports cooled.

Gross domestic product fell 1.5 percent from a year earlier, the first contraction since the mid-1990s, the Central Statistics Office said today in Dublin. Investment fell an annual 19 percent after a 7.2 percent drop in the previous quarter.

Ireland's economy may be facing its first recession in 25 years as construction contracts and household-spending growth eases, the Dublin-based Economic and Social Research Institute said. Standard & Poor's today lowered its ratings outlook for the country's largest lenders. The weak economy “will weigh heavily on performance,'' S&P said.

“We now have official evidence that Ireland is skirting on the edge of recession,'' said Dermot O'Leary, chief economist at Goodbody Stockbrokers in Dublin. “Given these trends it will be difficult for the economy to achieve any growth whatsoever in 2008.''

From the previous quarter, the economy shrank 0.2 percent. A recession is defined as two consecutive quarters of economic contraction.

Irish Finance Minister Brian Lenihan said this month that the country's housing boom has come to a “shuddering end.'' The property market decline and cooling economic growth have already pushed unemployment to a 9-year high of 5.4 percent and dragged consumer confidence to a record low.

Ratings Lowered

Separately today, Irish Life & Permanent Plc's long-term rating was lowered to A from A+ by S&P absolutely free credit report. The ratings company also lowered its outlook on Allied Irish Banks Plc, Bank of Ireland Plc and Anglo Irish Bank Plc. Irish mortgage lending grew at the slowest annual pace in more than 16 years in May as falling house prices deterred potential buyers.

Ireland's ISEF financial stock index fell 4.2 percent in Dublin, while the benchmark ISEQ index slipped 1.5 percent.

The quarterly 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 percent a year for a last decade, three times the euro area average. Ireland hasn't had a full-year economic contraction since 1983.

“While a normalization of new house building had been signaled for some time, the scale and the speed of the adjustment is a concern,'' Irish Prime Minister Brian Cowen said on June 25. It marks an “extraordinarily large turnaround in a short period of time.''

Consumer-spending growth slowed to an annual 3.5 percent in the first quarter from 5.4 percent in the previous three months, today's figures show. Avocent Corp., the U.S. maker of data- center switches, said today it plans to cut 64 jobs at its Irish operations.

Export growth eased to 0.5 percent from 8.2 percent. Import growth also slowed.

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