Ireland has become the first Eurozone member state to officially fall into recession since the United States subprime home loan crisis sparked a global slowdown.

The former darling of the European Union, whose ‘Celtic Tiger’ economy was always cited as a model, suffered a 1 per cent contraction in the first half of this year, according to figures from the Republic’s Central Statistics Office (CSO).

The news confirmed plentiful evidence on the ground that the Irish business sector is facing its most difficult period since the chronic unemployment and mass emigration of the 1980s.

The Taoiseach Brian Cowen said that painful decisions would have to be taken in the coming weeks.

The Department of Finance pointed to the crumbling property market and the international credit crunch for the alarming figures.

A Government spokesman said: "As expected, lower levels of new house building had a major restraining influence on growth in the second quarter, as is evident from the very weak investment figures.

"Other factors at work include higher commodity prices, global financial market problems, weak demand in our major trading partners and adverse exchange rate movements."

Recession was predicted earlier this year by the state’s influential think-tank the Economic and Social Research Institute (ESRI). Prophesying the country’s first recession since 1983, ESRI said that it would lead to the emigration of 20,000 people – a dramatic reversal of recent trends.

The Government is facing a massive budget deficit of between €5 billion and €7.5 billion (£3.95 billion and £5.9 billion) as the tax take dramatically fell this year.

The budget, traditionally held in December, was moved forward six weeks by Mr Cowen in an attempt to reduce the knock-on effects of the now shrinking economy.

The CSO National Accounts report said that GDP fell by 1.3% in the first quarter and again by 0.8% in the following three months.

Two successive falls in economic growth is internationally recognised as a recession. As expected, the construction sector took the biggest hit, falling by 12.2 per cent in the three months from April to June. That followed a 16 per cent drop in the first three months of the year.