THE REPUBLIC of Ireland’s economy is in a technical depression but will bounce back faster than the Northern Ireland economy, according to the first all-island economic forecast.

The Ernst Young Economic Eye report predicts that the economy of the island of Ireland will contract by almost 8 per cent in terms of gross domestic product (GDP) this year.

“The island economy is in the eye of an unprecedented economic storm and collateral damage is severe,” said Brendan Lynch, who advised on the report.

“Though early 2009 looks like being the worst period, recovery will be slow and the storm will leave scars on the economic landscape for years.”

With a decline of more than 10 per cent in GDP from its economic height, the Republic will effectively be in depression, it says.

In 2009 alone, the Republic’s economy will contract by 8.9 per cent, the report forecasts. By contrast, there will be a 2.9 per cent shrinkage in the Northern Irish economy. This will result in a contraction of 7.8 per cent in the all-island economy.

An “over-reliance” in Northern Ireland on the public sector and the relatively closed nature of its economy compared with the Republic means that although the downturn will be less pronounced north of the Border, the economy there will enjoy less “bounce back” in its recovery phase.

The sluggish nature of the recovery will mean that in many locations in Ireland the recession will have a “generational impact”, bringing severe hardship to many, Ernst Young concluded.