The eurozone economy will shrink by 1.9 percent this year due to the ongoing international financial crisis, the European Commission said in its latest economic forecast on Monday.

The report marked a significant downward revision from the commission's last forecast in November, which predicted a growth of 0.1 percent for the eurozone in 2009. The contraction was bigger than the 0.5 percent predicted by the European Central Bank (ECB) last month.

The eurozone economy already plunged into a technical recession in the third quarter of 2008 after registering negative growth of 0.2 percent in two consecutive quarters. The new forecast, however, implied a much deeper and protracted recession for the eurozone as the financial crisis takes its toll on the real economy.

"This is the result of the impact on the real economy of the intensified financial crisis, the ensuing global downturn manifested in the severe contraction of world trade and manufacturing output and, in some countries, housing-market corrections," the EU's executive arm said.

Economic activity worldwide was expected to have fallen markedly in the last quarter of 2008. Declines in recent survey data and incoming orders, among others, indicate that this weakness is likely to persist in the short term.

For 2009 as a whole, world gross domestic product (GDP) growth is projected to slow down to 0.5 percent, resulting in harder times for European exporters.

In the 27-nation European Union (EU), GDP growth was expected to fall by 1.8 percent in 2009 before recovering moderately to 0.5percent in 2010, according to the commission.

In Europe, the downswing was expected to be broad-based across countries as the financial crisis, the global cycle and, in some EU member states, a housing bust take their toll.

The fall in both private and net foreign demand was expected to be a significant drag on GDP growth, with only government consumption and public investment providing relief, the commission said.

The commission also forecast that the combined economy of the 16 EU nations that use the euro will not see recovery until the second half of this year, and is expected to grow by about 0.5 percent in 2010, thanks to stimulus measures carried out by member states.

"The measures to stabilize the financial market, the easing of monetary policies and the economic recovery plans will enable us to put a floor under the deterioration of the economy this year and create the conditions for a gradual recovery in the second part of 2009," said Joaquin Almunia, the EU economic and monetary affairs commissioner.

Amid a sharp slowdown, the labor market situation started to worsen in most EU member states in 2008. Employment growth was set to turn negative this year, with EU employment falling by 3.5 million jobs.

As a result, the unemployment rate was expected to increase to 8.75 percent in the EU in 2009 and to 9.25 percent in the eurozone, with a larger increase in 2010.

(Xinhua News Agency January 20, 2009)