THE ECONOMY contracted sharply by every measure in the third quarter of the year, according to figures published yesterday by the Central Statistics office.

Gross domestic product, the widest measure of economic activity, fell by 1.9 per cent on the previous quarter, the largest such decline in 2½ years.

Gross national product, a narrower measure of activity which excludes profits of multinational companies, declined by 2.2 per cent on the quarter.

Domestic demand, which excludes foreign trade, registered the largest contraction of the main indicators of economic activity. In the third quarter it declined by 3.6 per cent on the previous three-month period.

While GDP in the third quarter remained above its recession-era low, recorded in the final three months of last year, GNP plumbed new depths, falling to levels last reached in early 2004 (see chart 1, below).

The domestic economy is back to the size it was in 2002, representing a 26 per cent decline since peak in 2007. All figures are adjusted for inflation and for seasonal factors, but tend to be highly volatile regardless.

At a briefing yesterday, the CSO statisticians who compiled the figures cautioned against over-interpreting the data given the volatility of the figures from one quarter to the next.

In the first two quarters of 2011, most measures of economic activity rose by more than most observers expected.

Yesterday’s figures for the third quarter registered a larger decline than economists had anticipated. According to a poll of economists conducted by the Reuters news agency before yesterday’s release, the average forecast for third quarter GDP was a contraction of 0.5 per cent.

Sectorally, only the agriculture, forestry and fishing industry expanded output significantly in the third quarter, growing by 4.5 per cent on three months earlier (see chart 2, below).

Output in industry, the economy’s second largest sector, was stable on the previous quarter.

Of the four other sectors for which figures are available, the building and construction industry suffered the largest output contraction in the third quarter, shrinking by 5.9 per cent.

The services sector, which accounts for the largest single slice of economic output, contracted by 2.4 per cent quarter on quarter.

When the figures are disaggregated by type of expenditure, investment spending suffered by far the largest contraction, falling by more than a fifth between the second and third quarters.

Although one-off factors account for a large proportion of the decline, investment remains profoundly weak. The collapse of the construction industry and low levels of plant and machinery purchases by businesses are the main factors behind this.

Exports continued to provide the only boost to the economy. They were the only expenditure component to grow in the third quarter, rising by 0.8 per cent on the April-June period.