Sept. 25 (Bloomberg) -- Ireland became the first euro area economy to slide into a recession, as homebuilding and consumer spending slumped and the global financial crisis intensified.

Gross domestic product contracted 0.5 percent in the three months through June from the previous quarter, when it shrank 0.3 percent, the Central Statistics Office said today in Dublin. From a year earlier, the economy lost 0.8 percent.

The housing collapse, coupled with the global credit crisis, forced the Irish government to slash spending to keep its deficit in check and pushed the benchmark stock index to fall more than any other in western Europe this year. Ireland's slump may be followed by recessions across Europe, according to the European Commission, which has cut its forecasts for growth across the euro area.

``Ireland is unlikely to be alone in entering the euro area recession club,'' Julian Callow, an economist at Barclays Capital in London, said in a note. ``We expect that Italy and quite possibly Germany will also record contractions in their third quarter GDP, following contractions in the second quarter, with a substantial risk that France does as well.''

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

House Prices Plunge

Now, home building is plunging as house prices drop. Bank of Ireland Plc, the country's second-biggest bank, said on Sept. 17 it will slash its dividend by 50 percent and post a drop in first-half profit as loan losses mount. House prices fell 9.4 percent in July from a year earlier.

``The housing market is torpedoing the economy,'' Pat McArdle, chief economist with Ulster Bank Ltd. in Dublin, said in a phone interview. ``The third quarter will definitely be worse.''

From a year earlier, consumer spending fell 1.4 percent in the second quarter, the first year-on-year decline in at least 11 years, according to the statistics office. Exports rose 2.4 percent and imports fell 1.1 percent.

Finance Minister Brian Lenihan said in parliament today that the ``poor performance in tax receipts over the summer months'' has continued into September. Earlier this month, he brought forward the 2009 budget by six weeks after warning of a 5 billion-euro ($7.33 billion) shortfall in tax revenue this year.

``Ireland is an exceptionally open economy and the deterioration in the global climate has had a major impact,'' Lenihan said. ``The pace of growth in our main trading partners has slowed'' and the euro's increase against the dollar and the pound reduced export competitiveness, he said.

To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.

Last Updated: September 25, 2008 11:23 EDT