The Central Statistics Office (CSO) said that Irish gross domestic product (GDP) shrank 0.2pc in the fourth quarter after a contraction of 1.1pc in the third quarter, putting the country back into a technical recession.
Worse, the Irish gross national product (GNP) plunged 2.2pc in the fourth quarter after a 1.9pc decline in the previous three months. GNP is regarded by the Irish government as a more accurate barometer of the country's economic performance as it strips out substantial profits earned by multi-national companies in Ireland that are then taken out of the country. The CSO said the Irish economy grew by 0.7pc for the whole of 2011. But it shrank by 2.2pc in GNP terms.
Ireland, which received an €85bn (£71bn) international bailout in 2010, has won plaudits from eurozone members for its implementation of tough spending cuts and austerity measures.
European leaders, including Angela Merkel, the German Chancellor, have held up the country as a poster child for other "sinner states" to copy. At the World Economic Forum in Davos in January, Jyrki Tapani Katainen, the prime minister of Finland, said: "The Irish model [of recovery] is the one we all need. I don't see that we have any choice… there is no short cut to heaven."
By cutting public sector jobs and pay and increasing the state pension age, Ireland turned 10 years of budget deficits into a surplus last year. But in a note today analysts at Citigroup argued: "Ireland is often held up as a success story among high deficit euro area countries, but in practice current policies probably will not succeed in returning the economy to fiscal sustainability."
They argued the Irish economy "faces a range of major headwinds, with heavy fiscal tightening, large deleveraging by banks and households, and high trade exposure to Europe."
Although officially, Ireland expects GDP to rise by 1.3pc this year. But according to the Citi analysts the "economy will markedly undershoot official forecasts, with GDP probably shrinking this year. As a result, tax revenues will probably undershoot official forecasts, and the fiscal deficit will probably overshoot."