20 Jan 2009

Europe 'to suffer deep recession'

4:52 pm on 20 January 2009

The European Commission is forecasting that the European Union economy will shrink 1.8% this year as one of the worst recessions on record pushes unemployment and government deficits to levels not seen for years.

The comission said the roots of recovery will only take hold in the middle of the year, and the EU would achieve economic growth of just 0.5% in 2010.

The 27-nation economy grew 1% in 2008.

The outlook was marginally worse for the 16 countries sharing the euro, which the commission forecast would see their combined economy shrink 1.9% this year after growing 0.9% in 2008.

The forecast marked a severe downward revision from the commission's last estimate in November, when it predicted the eurozone economy would eke out growth of 0.1%.

With the economy suffering from a 9.2% drop in business investment this year, it too would only begin picking up in the middle of the year before managing to grow 0.4% in 2010.

At the same time, unemployment will climb to levels not seen in Europe for over a decade as joblessness becomes once again a major headache for workers and politicians.

The commission forecast that the eurozone jobless rate would rise from 7.5% in 2008 to 9.3% this year and hit 10.2% in 2010. Unemployment was last over the 10% mark in 1988.

The commission warned that some countries would see much more dramatic downturns than others, with the financial crisis and housing market crashes taking a heavy toll on the Irish and Spanish economies in particular.

European governments pledged in December to pump a combined 200 billion euros into a Europe-wide economic stimulus package.

However, some governments, including that of economic powerhouse Germany, have already come out with plans since then for even more stimulus or are considering doing so.

The British government on Monday announced its second bank rescue plan in three months