The European Commission has announced the 15-country Eurozone has entered its first technical recession - defined by economists as two or more consecutive quarters of economic contraction - since its creation in 1999.
The worst financial crisis for generations has driven the EU economy into a recession and economic growth will come close to a standstill in 2009, the European Commission warned on Monday
The 15 countries sharing the euro have slumped into the first technical recession, defined by economists of two or more quarters running of economic contraction, since the bloc was formed in 1999, the commission estimated.
"The economic horizon has now significantly darkened as the European Union economy is hit by the financial crisis that deepened during the autumn and is taking a toll on business and consumer confidence," said EU Economic Affairs Commissioner Joaquin Almunia.
In a broad downgrade of its estimates, the commission also forecast a short, shallow recession for the EU, predicting the bloc's combined economy would shrink by 0.1 percent in both the third and fourth quarters of 2008.
For the whole of 2008, the EU's executive arm forecast that the 27-nation economy would grow 1.4 percent and eke out growth of only 0.2 percent next year.
In the eurozone, the economy shrank 0.2 in the second quarter and is set to contract by 0.1 percent in both the third and fourth quarters, according to the commission's forecasts.
The commission estimated that would bring growth over the whole of 2008 to 1.2 percent, but said that the eurozone economy would come close to stalling in 2009 with growth of merely 0.1 percent.
"The situation in the markets remains precarious and the crisis is not yet over. This means weaker growth," Almunia told journalists.
Global financial markets have seen some of the most volatile trading in decades over the last month although a relative degree of calm has returned over the last week.
In the face of sharply slowing growth, the commission forecast that unemployment would return as a major headache in Europe after a steady decline in recent years.
It predicted that the unemployment rate in the eurozone would creep up from a record low of 7.2 percent in March to 8.7 percent in 2010.
Meanwhile, the economic slowdown would also take its toll on public finances driving deficits in the eurozone as a percentage of output from 1.3 percent this year to 1.8 percent in 2009.
However, some countries would be far over the average with France's deficit hitting the 3.0 percent limit allowed by EU rules this year and breaching it next year with a deficit of 3.5 percent.
Some relief would come in the form of lower inflation which the commission said had peaked since commodity prices had fallen in the middle the year.
It forecast that annual inflation in the eurozone would reach 3.5 percent in 2008 before easing back to 2.2 percent in 2009 and 2.1 percent in 2010.
If confirmed, that would bring the inflation rate much closer to the European Central Bank's comfort zone of close to but less than 2.0 percent, giving more scope for a series of rate cuts in the face of weak growth.
Date created : 2008-11-03