Reykjavik  - Iceland's economy shrank 3.6 per cent in the first quarter of 2009 compared to the final quarter of 2008, Statistics Iceland said Monday.

The estimates also indicated that domestic expenditure declined 3.3 per cent in real terms, and exports dropped 1.9 per cent. Imports increased 7.8 per cent quarter-on-quarter, the agency said.

The North Atlantic nation has since mid-October suffered from the ramifications of the global credit crunch that saw its three major banks taken over by the state. Unemployment has also surged as a result of the crisis.

Projections by the government, central bank and International Monetary fund that in November approved a 2.1-billion-dollar aid package suggest the economy will contract by some 10 per cent this year amid weaker exports and investments as well as lower domestic demand.(dpa)