April 29 (Bloomberg) -- Ireland’s economy may shrink almost 12 percent in the three years through 2010, the biggest decline of any industrialized country since the Great Depression of the 1930s, the country’s Economic & Social Research Institute said.

Gross domestic product may decline 8.3 percent this year, the Dublin-based institute said in its quarterly report today, more than double the contraction it forecast in December.

The contraction over the three years would be the worst in an industrialized economy since an 11 percent decline in Finland between 1990 and 1993, the ESRI said. Ireland, once the fastest- growing economy in the euro region, is struggling to contain a swelling budget deficit and deal with a surge in unemployment after the collapse of a housing boom and as companies from Dell Inc. to Royal Bank of Scotland Group Plc cut jobs.

“We’re remarkably exposed” to the global slump, said Alan Barrett, senior economist at the ESRI. “But it always comes back to housing,” which during the boom accounted for more than 20 percent of economic growth.

Ireland’s $240 billion economy will probably shrink 1.1 percent in 2010, according to the institute. It receded by 2.3 percent last year, the first full-year contraction in a quarter century.

The budget deficit may climb to 12 percent of GDP this year, four times the European Union limit, even as Prime Minister Brian Cowen’s government raises income taxes and cuts spending on public services.

The institute said the measures, announced in an emergency budget on April 7, as well as an additional levy on public workers to cover their guaranteed pensions, may limit the deficit to 11.5 percent in 2010.

“Our assessment of the fiscal measures introduced in February and April is broadly positive and we see these as important moves in the direction of restoring fiscal sustainability,” the report said.

It said unemployment may increase to 13.2 percent by the end of the year and climb to 16.8 percent by the end of 2010.

To contact the reporter on this story: Ian Guider in Dublin at iguider@bloomberg.net.

Last Updated: April 28, 2009 19:01 EDT