Iceland officially entered recession in Q4 2008

AFP - The wave of financial disasters which hit Iceland late last year has thrown the economy into recession, official data showed on Friday.

Output fell by 0.9 percent in the fourth quarter compared to the level in the preceding three months, a statement from the statistics office said.

The economy had shrunk by 3.4 percent in the third quarter, and a recession is commonly defined as two quarters of contraction in a row.

But for the whole of 2008, gross domestic product rose by 0.3 percent from the level in 2007, buoyed by rising exports, particularly aluminium, and a fall in imports, the office said.

"Exports of aluminium were the biggest part of the total of exports, around 90 per cent," due to big investments in the past two years, a spokesman for the statistics office, Stefan Thor Jansen, told AFP.

Growth had been much higher in 2007 at 5.5 percent, according to revised figures.

Iceland was hit full force by the credit crisis which spread worldwide last year.

Its financial sector, formerly worth several times its GDP, crumbled and the government was forced to take over the three country's biggest banks.

Thousands of Icelanders lost their savings and jobs and the government later resigned amid popular anger.

In January the central bank forecast a brutal contraction of 9.9 percent of GDP for 2009.