DUBLIN (Reuters) – Ireland became the first euro zone country to slide into recession this year, with economic activity in the former "Celtic Tiger" at its weakest in a quarter of a century after its property bubble burst.

Gross domestic product (GDP) fell 0.5 percent in the second quarter compared with the first three months of the year following a 0.3 percent contraction in the first quarter, according to official data that was in line with expectations.

Ireland released its second quarter data relatively late but analysts expect other countries in the 15-member euro zone to follow it into recession as third quarter numbers are released and turmoil in the financial sector begins to bite.

A Reuters poll earlier in September showed a 40 percent chance the euro zone as a whole would slide into technical recession within the next 12 months.

"These numbers confirm what we've already seen from spending and sentiment indicators, that a fairly sharp downturn is underway," IIB Bank chief economist Austin Hughes said.

"I think the interesting element is that it's largely a product of domestic factors, with the construction sector under severe pressure and consumers showing either great fright or foresight in pulling back their spending, which has happened at a remarkable rate."

Economic activity was depressed by a 30 percent plunge in new home-building seen after a ten-year bonanza in property market fizzled out and a sharp fall in investment in machinery and equipment as firms braced for the global economic slowdown.

"One thing we know for sure is that investment spending is going to continue to act as a drag on the economy in 2009, particularly on the house building side," said Dermot O'Leary, chief economist at Goodbody Stockbrokers.

"We know also that the labour market is deteriorating — so that is going to affect consumption spending. So it does not look like it is going to be a V-shaped recovery."

While exports held up, analysts said this would be short-lived given the global economic environment and financial market turmoil.

"I think we're looking at a drop in GDP and GNP this year of around 1.5 percent," Hughes said.

Ireland, which saw thousands leave its shores to seek work after the last recession in 1983, enjoyed an unprecedented boom after the late 1990s as multinationals arrived in droves to take advantage of one of the lowest corporate tax rates in Europe.