Irish GDP fell 1.5 percent in January to March compared with a 5.4 percent drop in the final quarter of 2008, official data on Tuesday showed, but economists cautioned against cheer.

Year-on-year, GDP fell 8.5 percent in the first quarter, above economists' median forecast for a 9.1 percent drop.

"I don't see the (quarterly GDP) figures going up until 2010. I'm definitely in the slow growth camp," said Brian Devine of NCB Stockbrokers.

Ireland, once the envy of Europe with its double digit growth rates, is set to be the worst performing economy in the industrialised world this year with the OECD predicting GDP will contract 9.8 percent as a burst property bubble hits the banks, the consumer and the government.

The country is on the "borderline" of losing its last remaining top 'AAA' credit rating, a Moody's official told Reuters on Monday, signalling it may follow Standard & Poor's and Fitch which have already downgraded.

Fitch told Reuters Television on Tuesday that Ireland would gain from a recovery in global trade but its rating outlook remained negative due to its domestic problems, which stem from the legacy of a debt-fuelled property boom.

The International Monetary Fund (IMF) forecast last week that Ireland's economy would only resume growth at an anaemic 1 percent in 2011 after suffering a 13.5 percent contraction between 2008 and 2010.

CONSUMER SPENDING

The IMF has also warned that Irish bank losses could reach 35 billion euros as property prices continue to plummet.

Ireland's national debt, already rising to cover plummeting tax revenues, is set to jump as taxpayers meet the cost of setting up a "bad bank" to cleanse the sector of bad debt.

Ireland's gross external debt rose 32 billion euros from the end of last year to 1.69 trillion euros at the end of March, data on Tuesday showed.

Dublin is taking some comfort from the performance of its export sector which has continued to grow as demand for pharmaceutical products and chemicals holds up.

Data on Tuesday showed Ireland's current account deficit for the first quarter was 2.5 billion euros (2.1 billion pounds), more than 1.6 billion less than in the same period in 2008.

"You essentially have two economies in Ireland, the domestic economy which is clearly very weak and the export sector is contributing positively to growth," said Dan McLaughlin, chief economist with Bank of Ireland.

In a rare piece of good economic news, Irish consumer confidence hit a 14-month high in June signalling widespread pessimism has bottomed out as consumers draw some comfort from signs of "green shoots" abroad.

"With consumer confidence showing signs of stability and interest rates having fallen so much one might expect consumer spending to decline at a less frenetic pace," said McLaughlin.

Growth in lending to the private sector, however, dropped to a record low in May as consumers tightened their belts in the face of ballooning dole queues and higher taxes.

Gross National Product (GNP) dropped 12 percent in the first quarter from a year ago compared with expectations for a 9.8 percent fall.

GNP is seen as a more accurate measure of Ireland's economic performance because it excludes multinationals' profits.

Ireland revised down its estimate for 2008 GDP to -3 percent from a preliminary -2.3 percent. It also said GNP fell 2.8 percent last year compared with a preliminary estimate of a decline of 3.1 percent.

(Additional reporting by Andras Gergely; Editing by Chris Pizzey/Victoria Main)