(Recasts with deficit rise, prime minister comment)
By Jonathan Saul
DUBLIN, Dec 18 (Reuters) - The Irish government raised its 2009 budget deficit forecast on Thursday and while data showed an economic rebound in the third quarter, there was little hope the former "Celtic Tiger" could recover from a deepening slump.
Ireland was the first euro zone economy to slide into recession earlier this year, its first contraction in a quarter century, due to a bursting property bubble and the global credit crunch.
Gross domestic product (GDP) on Thursday surprised with a 1.2 percent rise in July-September after two consecutive quarters of contraction, a technical measure of recession, while gross national product (GNP) also fell less than expected.
But a senior statistics office statistician said the fall itself in GNP data was a better measure of the trends in the domestic economy because it excluded profits earned by multinationals who have a big presence in Ireland.
"There is no indication of any turnaround in the economy in the near future," Michael Connolly told Reuters.
In annual terms GDP rose 0.1 percent compared with analysts' forecasts of an almost 2 percent contraction. GNP fell 0.9 percent in the third quarter, after contracting 3.5 percent in the previous three months.
KBC Bank Ireland chief economist Austin Hughes said the recovery in third quarter numbers was not an accurate depiction of Ireland's "underlying economic reality". "The sharp recent change in economic conditions at home and abroad suggest today's third quarter data are outdated," he said. "It is likely that the trajectory of growth will worsen further in late 2008 and early 2009."
DEFICIT SET TO RISE
The deteriorating economy has hit public finances and the government in its October budget predicted the deficit hitting 6.5 percent of GDP in 2009 -- more than double the EU limit.
At the launch of an economic renewal plan on Thursday, the government raised the projected deficit further.
"The fall in the 2008 revenue take alone would push the 2009 general government deficit up by about 1.5 billion euros ($2.16 billion) to 7.25 percent of GDP," it said.
Prime Minister Brian Cowen said the plan, which aimed to prepare Ireland for a global economic recovery, included setting up a 500 million euro fund for research and development. The 10-year fund will be a joint public-private investment.
Cowen also reiterated his commitment to public investment projects aimed at improving the country's infrastructure, while also pledging "pro-enterprise" tax measures without giving further details.
"There is an easier way for me to get back to the 3 percent stability and growth pact (limit) -- that's cutting the capital investment programme," he told reporters. "I won't do it."
The government has predicted the economy will shrink between 3 and 4 percent next year, making it the country's worst recession on record.
Data this week showed retail sales posted their biggest year-on-year drop in over 24 years in October with higher value added taxes announced in the budget and a weak sterling triggering an exodus of shoppers across the border to Northern Ireland.
Cowen said it was vital for Ireland's open economy to boost its competitiveness, although he noted sterling's weakness.
"The policies being pursed by the UK government are having very adverse effects on Irish exports," he said.
GDP rose 0.1 percent in the third quarter versus the same period in 2007, with GNP falling 4.9 percent year-on-year.
"We will not be changing our view that the economy is entering 2009 with significant downward momentum," said Goodbody Stockbrokers chief economist Dermot O'Leary.
(Editing by Patrick Graham)