The economy of the euro zone will contract by 1.9% this year as unemployment surges and government deficits explode in the midst of a severe recession, the European Commission forecast today.
The forecast marked a dramatic downward revision from the commission's last estimate in November, when it predicted that the euro zone economy would eke out growth of 0.1%.
Today's commission figures show Ireland will have the second worst performing economy in Europe, and that recovery here will be delayed until 2010.
There is some hope in an otherwise grim set of figures. According to Economics Commissioner Joachim Almunia, the EU economy could stop shrinking by the end of March, with the first small signs of recovery coming around October.
But that will happen only if the massive economic stimulus programmes arranged by 18 of the 27 states are effectively implemented and if the banks resume normal lending to businesses.
Ireland appears to be particularly hard hit, with the economy set to shrink by 5% - by far the weakest performance in the euro area. In the wider EU only Latvia - down 7% - will be worse.
The Commission does project a rebound in Ireland economy for 2010, when it says economic growth will have recovered to zero.
The estimate also reveals that the euro zone has rapidly plunged into a deep recession after growing an estimated 0.9% in 2008.
The commission said the euro zone would not see the beginning of a recovery before mid-2009 and that the euro zone economy would then manage to grow a meagre 0.5% in 2010.
It also forecast that the 27-nation EU economy would fare only marginally better, contracting 1.8% this year before achieving growth next year of 0.5%.
At the same time, unemployment will climb to levels not seen in Europe for over decade as joblessness becomes once again a major headache for workers and politicians.
The commission forecast that the euro zone jobless rate due to rise from 7.5% in 2008 to 9.3% this year and hit 10.2% in 2010 - over the 10% mark for the first time since 1998.
With their economies in a tailspin, European governments pledged in December to pump a combined €200 billion 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 bigger stimulus plans or are considering doing so.
As governments plough billions into trying to revive their economies and bail out their banks, public deficits will swell, balloning from 1.7% of output in 2008 to 4% in 2009 and 4.4% in 2010.
