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European economy 'will shrink 4%' European economy 'will shrink 4%'
(30 minutes later)
The eurozone and EU economies will contract by 4% this year the European Commission has forecast, in a massive revision from its earlier prediction. The eurozone and EU economies will contract by 4% this year, the European Commission has forecast, in a massive revision from its earlier prediction.
And unemployment in the 16 countries using the euro is expected to rise to 11.5% in 2010, and to reach 10.9% in the 27-nation EU next year. The worsening of the global financial crisis, dropping levels of world trade and continuing house value falls had prompted the downgrade, it said.
In January, the commission said the eurozone would shrink by 1.9% in 2009 and grow by 0.4% in 2010. Europe's economy would not start recovering until the second half of next year, the commission added.
Now it expects the eurozone economy to shrink by 0.1% next year. It also predicted unemployment in the eurozone would rise to 11.5% in 2010.
"The main factors behind the recession are the worsening of the global financial crisis, a sharp contraction in world trade and ongoing housing market corrections in some economies," the commission said in a statement. The figure would reach 10.9% in the 27-nation EU next year, it said.
Countries needed to focus on cleaning up banks' toxic assets, it added. 'Exceptional cicumstances'
The commission also expects inflation to fall well below the European Central Bank's target of 2%.
"The European economy is in the midst of its deepest and most widespread recession in the post-war era," said EU Economic and Monetary Affairs Commissioner, Joaquin Almunia."The European economy is in the midst of its deepest and most widespread recession in the post-war era," said EU Economic and Monetary Affairs Commissioner, Joaquin Almunia.
"But the ambitious measures taken by governments and central banks in these exceptional circumstances are expected to put a floor under the fall in economic activity this year and enable a recovery next year.""But the ambitious measures taken by governments and central banks in these exceptional circumstances are expected to put a floor under the fall in economic activity this year and enable a recovery next year."
Countries needed to focus on cleaning up banks' toxic assets, he added.
The commission's forecast is not as bleak as the outlook from the International Monetary Fund (IMF) - which says eurozone GDP will fall by 4.2% this year.
However it is less optimistic than the European Central Bank which forecast a 3.8% contraction in its latest estimate.
Irish woes
The commission expects inflation to fall well below the European Central Bank's target of 2%.
It projects inflation to slow to 0.4% this year from 3.3% in 2008, and to rise to only 1.2% in 2010.
While the downturn was widespread, the extent of economic contraction varied between nations.
Germany, Europe's biggest economy, is expected to contract 5.4% this year, while the UK and Italy are expected to shrink by between 4% and 4.5%.
However the once-booming Irish economy will see a 9% drop and Latvia will shrink by 13.1%, the commission said.
"The main factors behind the recession are the worsening of the global financial crisis, a sharp contraction in world trade and ongoing housing market corrections in some economies," the commission said in a statement.