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Business

EC expects economy to shrink 4 percent in worst slump since WWII

Video by Aurore Cloe DUPUIS , Catherine VIETTE , Pauline PACCARD , Damien COQUET

Latest update : 2009-05-05

The European Commission posted a more-pessimistic economic forecast on Monday, predicting a four percent contraction of both the EU and the euro-zone economies in 2009.

AFP - Europe will suffer a deeper and longer recession than previously thought, the European Commission warned on Monday, forecasting that both the EU and eurozone economies would contract 4.0 percent in 2009.
  
The estimate marked a dramatic downgrade of the European economic outlook after the European Union's executive arm forecast in January that the eurozone economy would shrink only 1.9 percent and the EU economy 1.8 percent.
  
The commission also forecast that what has turned out to be Europe's worst recession since the end of World War II would drag into 2010 when both the eurozone and EU economies would shrink another 0.1 percent.
  
In its last forecasts from January, the commission predicted that the 16 nations using the euro would eke out growth of 0.4 percent in 2010 and the  27-nation EU 0.5 percent.
  
While the downturn was widespread, Europe's biggest economy, export-dependent Germany, was expected to contract by 5.4 percent this year as foreign demand for German products dries up.
  
Many smaller countries were likely to see worse recessions, with Latvia due to suffer a stunning 13.1 percent contraction in its economy this year while the once-booming Irish economy is seen shrinking 9.0 percent.
  
Although recovery plans were expected to begin boosting limp economic activity, Europe was set to see a dramatic rise in unemployment and government deficits, the commission said in its spring economic outlook.
  
Mass unemployment would return to haunt Europe with some 8.5 million Europeans expected to lose their jobs in 2009 and 2010, driving the jobless rate in the eurozone to 11.5 percent in 2011 and 10.9 percent in the EU.
  
"The European economy is in the midst of its deepest and most widespread recession in the post-war era," EU Economic and Monetary Affairs Commissioner Joaquin Almunia warned.
  
"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."
  
However, government efforts to prop up slumping economies were expected to weigh heavily on public deficits, which are projected to rise on average to 7.5 percent of gross domestic product in the EU next year.
  
This year, 21 out of the 27 EU countries are expected to have deficits in breach of the three-percent limit they are bound to respect.
  
Despite the dire outlook for the European economy, the commission warned that there was considerable risk that it could worsen next year, especially if the financial crisis deepened.
 

Date created : 2009-05-04

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