REUTERS - A collapse in exports, and plunging household demand and investment combined to produce the deepest ever quarterly economic contraction in the euro zone in the last three months of 2008, data showed on Thursday.

The European Union's statistics office confirmed its earlier estimate that quarter-on-quarter gross domestic product in the euro zone shrank 1.5 percent in October-December after a 0.2 percent drop the previous quarter.

Year-on-year, Eurostat said the contraction was 1.3 percent, deeper than the previously reported 1.2 percent.

The contraction is the deepest on record for the euro zone, which now has 16 members. The news comes as the European Central Bank meets on interest rates amid strong market expectations it will cut borrowing costs by 50 basis points to 1.5 percent.

The biggest negative contribution to the overall quarterly fall came from net trade, which took away 0.9 percentage point. Tumbling exports subtracted 3.1 percentage points while a hefty fall in imports added 2.2 percentage points.

Household demand took away another 0.5 percentage point and investment 0.6 point. Government spending subtracted 0.1 percentage point.

Apart from imports, the only positive contribution to growth came from inventories, which added 0.6 percentage point.

Eurostat said that over the whole of 2008, GDP grew by 0.8 percent in the euro area and by 0.9 percent in the European Union of 27 member states, against 2.6 percent growth in the euro zone in 2007 and 2.9 percent in the EU respectively.

In the United States, the economy expanded 1.1 percent last year and contracted by 0.7 percent in Japan.

The ECB will also publish on Thursday its new growth and inflation forecasts. Economists expect a sharp downward revision of its December prediction that euro zone growth will be in the range of -1.0-0.0 percent in 2009.