Gross domestic product fell 1.6 percent from the previous three months, when it increased 0.6 percent, the Central Statistics Office said in Dublin today. Consumer spending declined 0.4 percent on the quarter, exports fell 1.4 percent and investment dropped 2.3 percent. In 2010, the economy shrank 1 percent, a third straight annual contraction.

Ireland’s Fine Gael-led government, which came to power after an election last month, wants to revive the economy after a slump that sent the budget deficit soaring, brought the banking system close to collapse and forced the country to seek a bailout. EU leaders meet in Brussels today to sign off on measures aimed at drawing a line under Europe’s debt crisis, as pressure mounts after Portugal’s fiscal plan was defeated in parliament and Prime Minister Jose Socrates offered to resign.

“Plans for a grand bargain at the EU leaders’ summit, starting today, have been scuppered before the meeting has even begun,” Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin, said before the GDP data were published. “The political difficulties experienced by Ireland in the run- up to its application for international aid were exceeded by Portugal last night, as its government’s fiscal plan failed.”

Exports Fall

The Irish data showed imports slipped 0.1 percent in the fourth quarter from the previous three months, while government spending rose 0.3 percent. From a year earlier, GDP fell 0.7 percent after a 0.3 percent decline in the third quarter.

Based on gross national product, Ireland’s economy shrank 2.1 percent in 2010 after a 10.7 percent drop in 2009.

In a separate report, the statistics office said the current account surplus widened to 1.4 billion euros in the fourth quarter from 255 million euros.

Portugal was pushed closer to an international bailout yesterday after lawmakers rejected additional austerity measures aimed at cutting the budget deficit. The yield premium on Portugal’s 10-year debt over German bunds rose to 445 basis points today from 439 basis points yesterday. The premium on Irish 10-year debt increased to as high as 698 basis points, a euro-era record.

Prime Minister Enda Kenny wants the 5.8 percent interest rate on Ireland’s aid loans from the European Union and International Monetary Fund lowered. The country’s previous government accepted an 85 billion-euro ($120 billion) package last year as bank bailout costs soared. Stress tests due on March 31 will determine how much more capital banks need.