Ireland is expected to run a budget deficit of 5.5 percent of gross domestic product this year, almost double the limit prescribed by European Union rules, a government-funded research body said on Tuesday.

Ireland, which became the first euro zone country to enter recession this year, announced last month it would bring forward its 2009 budget by two months to October 14 in a bid to restore confidence as state revenues drop.

In the first nine months of this year, Ireland already fell 9.4 billion euros in the red, more than triple the deficit a year ago, the finance ministry said last week, forecasting a 6.5 billion euro shortfall in tax revenues for the year 2008.

The Economic and Social Research Institute said Ireland’s gross national product (GNP) is expected to fall by 1.3 percent in 2008 and 0.7 percent next year.

“Even stabilising the deficit will still require severe cuts in spending and tax increases, which will themselves contribute to the economic downturn,” the ESRI, which is independent but partly funded by the finance ministry, said in a quarterly report.

The ESRI, which had been one of the first major institutions to predict that Ireland would enter its first recession since 1983, said the economic contraction in 2008 was largely the result of a domestic housing downturn.

“Weak international conditions in both 2008 and 2009 leave little scope for external demand to fill the gap left by falling internal demand,” the ESRI added.

Ireland’s central bank said on Friday that GDP was expected to contract by 0.8 percent this year and by 0.9 percent in 2009, with this year’s budget deficit set to exceed the 3-percent limit prescribed by the European Union “perhaps significantly”.

The European Commission said on Friday that the budget rules set out in the Stability and Growth Pact remained valid despite the economic downturn and financial turmoil.

The leaders of the EU’s four biggest countries, however, signalled at a weekend emergency summit that the severity of the crisis could justify more leniency over the application of budget rules.

Ireland angered many European partners last week when it unilaterally unveiled a scheme to guarantee deposits and debt worth some 400 billion euros of six Irish financial institutions to shore up the banking system.

Separately, business group IBEC said on Monday that Ireland’s 2009 budget deficit could exceed 8 percent of gross domestic product unless substantial corrective measures are taken.

Source: http://www.afxnews.com

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