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Commission forecasts 2 years of economic gloom for Europe

EUROPE is suffering "a deep and widespread recession," the European Commission said yesterday, estimating that unemployment will rise sharply over the next two years and that European Union economies will shrink twice as much as it predicted only a few months ago.

The commission said both the 27-nation EU and the 16 countries that use the euro currency will shrink by 4 percent this year.

That's more than double its January estimates, when it forecast a 1.8-percent contraction for the EU and a 1.9-percent decline for the eurozone.

Germany will be hit even worse, contracting 5.5 percent this year, said the commission.

Because of the big drop in output, the commission said some 8.5 million jobs will disappear in the EU in 2009 and 2010, more than wiping out the number of new jobs created in the past two years. Eurozone unemployment will hit a postwar record of 11.5 percent next year, it said.

The EU's executive predicted a "subdued recovery" next year, with both the EU and the eurozone economies shrinking by 0.1 percent - but warned this would only happen if world trade starts to recover.

The new forecasts echo those made by other bodies such as the International Monetary Fund.

The EC said manufacturing and exports are suffering, with eurozone exports "forecast to suffer one of the worst setbacks on record" with a 13-percent slump this year.

Currency strength

Europe's manufacturers have been hit badly by the slide in global trade and the strength of the euro against the United States dollar and other currencies.

Britain and Italy will shrink by between 4 percent to 4.5 percent, while France, cushioned by heavy government spending that supports growth, will post a 3-percent drop. Spain will also shrink by 3 percent.

Both Britain and France will see unemployment climb over 3 million next year - with France reporting an 11-percent jobless rate. Spain is forecast to fare worse with one in five workers unable to find a job.

The EC warned that even worse may be ahead and banks' efforts to shore up their financial position by putting more money aside to cover bad debts "may unravel with greater intensity than currently expected."

It said a bad-debt spiral from falling house prices could trigger a wave of bankruptcies that lift unemployment and lead to more debt defaults.


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