Eurozone economic forecast slashed

The eurozone economy will shrink at twice the pace predicted three months ago, and the end of Europe's severe recession will not materialise till the second half of next year, the European Commission said in its latest forecast. The region's Brussels-based executive arm said that job cuts in the next two years will almost wipe out employment gains since 2006 and the region's deficit will swell to more than double the EU limit. The economy of the 16 countries sharing the euro will shrink 4% in 2009 and 0.1% in 2010, the commission said today, revising a January estimate for a contraction of 1.9% this year and 0.4% growth in 2010. The commission's new forecasts are in line with numbers from the IMF and the OECD. The IMF said on April 22 that the euro-area economy may shrink 4.2% this year and 0.4% in 2010, while the OECD forecast a contraction of 4.1% this year and 0.3% in 2010.

"The European economy is in the midst of its deepest and most widespread recession in the post-war era," Economic and Monetary Affairs Commissioner Joaquin Almunia said. "The outlook is still gloomy, but for the first time since mid-2007 some positive signals have appeared in the last week," he told a news conference. 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, Almunia said. "We have the feeling the bottom is closer and closer, and thanks to fiscal stimulus and monetary stimulus we will avoid any new falls," he said.