The headlines today are filled with reports of how America's economy declined by a 6.1% annual rate in the first quarter. Far worse than expected.

But that's nothing compared to Ireland's economy, which is shrinking at a rate no industrialized nation has seen since the Great Depression.

(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.
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“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.

A rapidly contracting economy following a huge housing bubble, and now a budget deficit above 12%. That sounds very similar to what is going on next door in Britain.

“By 2010, the U.K. will have the largest budget deficit in the developed world,” said Richard Snook, a senior economist at the Center for Economic and Business Research in London. “The problem is that the financial services industry has been a huge cash cow for the British government for the last 10 years and now it is going into reverse.”

The country’s budget deficit has soared to 12 percent of gross domestic product; its public debt burden could soon reach 80 percent of annual economic output, a figure that would leave it roughly in the same position as Greece.

That's not to say that the housing bubble implosion is limited to english-speaking countries. Spain saw a similar housing bubble that has now burst. Spain's economy is shrinking at its fastest pace in 40 years, when Franco was still dictator.

The economy contracted 1.8 percent in the first three months compared with a 1 percent contraction in the fourth quarter, the central bank said in its monthly bulletin today. From a year earlier, the economy contracted 2.9 percent. Both numbers were the sharpest declines since at least 1970, according to data from the National Statistics Institute, which publishes its own estimate of gross domestic product on May 14.

Spain is at the forefront of Europe’s economic crisis and accounts for more than half of the increase in euro-region joblessness in the past year. The collapse of the country’s housing boom, which allowed economic growth to outpace the European Union for more than a decade, has triggered the deepest recession in half a century. Consumer prices are declining, fueling deflation risks, and a rising budget deficit prompted Standard & Poor’s to cut Spain’s credit rating in January.