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By Carmel Crimmins
DUBLIN, Dec 12 (Reuters) - Ireland faces its worst recession on record next year with the government forecasting the economy will shrink between 3 and 4 percent as the fallout from a global downturn and imploding property market deepens.
The finance ministry confirmed on Friday the gloomier outlook, which compares with a 0.75 percent contraction in gross domestic product that Finance Minister Brian Lenihan forecast just two months ago.
"We have never seen in Ireland a four percent contraction," said Dermot O'Leary, chief economist with Goodbody Stockbrokers, which expects the economy to shrink by 4.2 percent next year.
Government records on GDP go back to 1949.
Ireland was the first euro zone economy to slide into recession earlier this year, suffering its first downturn in a quarter of a century as a bursting property bubble at home and the global credit crunch slashed consumer demand and government finances.
The gloomy forecasts for next year are a far cry from the late 1990s when the property boom fuelled double-digit economic growth and gave rise to the "Celtic Tiger" economy.
Lenihan said he would revise his fiscal and economic assessments in the light of the rapidly deteriorating climate.
Some economists expect him to introduce a supplementary budget setting out an action plan.
"The next step is to take the necessary action in relation to current spending in the public sector and to put forward a plan for economic recovery in the medium-term," said O'Leary.
A finance ministry spokesman said there were no plans for an interim budget.
FIREFIGHTING
In contrast to its European neighbours, who are pumping their economies with funds to stimulate demand, Ireland is tightening the purse strings.
The economy's over-reliance on the property sector means that even with less spending and higher taxes, Ireland is facing a budget deficit of 6.5 percent of GDP next year, more than double the EU average.
With jobless claims at a 12-year high and more pain forecast, the government is trailing opposition parties in the polls.
"The danger is that people will ask are these guys up to the job at all?" said Alan McQuaid, an economist with Bloxham stockbrokers.
"The rest of the world is saying that this is a serious crisis and it's a firefighting exercise and we'll deal with the consequences afterwards."
European leaders are expected to finalise a 200-billion-euro ($264 billion) economic stimulus package plan worth about 1.5 percent of total EU output at a summit later on Friday.
Lenihan's outlook for next year is far gloomier than an average forecast of a 2.8 percent contraction in 2009 among economists polled by Reuters late last month.
Analysts, on average, expect the Irish economy to shrink by 1.9 percent this year.
Dennis Shaughnessy, chairman of FTI Consulting, a global restructuring firm, said he expected plenty of business in Ireland next year.
"I think we will be very busy in Ireland ... helping Irish companies navigate what will clearly be troubled waters." (Reporting by Carmel Crimmins, editing by Christian Lowe)