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European Union predicts deeper recession

BRUSSELS — Deepening the economic gloom in Europe, the European Union admitted Monday that its previous forecasts were way off the mark. It now predicts "a deep and widespread recession" across the continent and says unemployment among nations using the euro currency will rise to a post-World War II record of 11.5 percent in 2010.

The new forecasts expect the economies of the 27-nation EU and the 16-nation euro-zone to shrink by 4 percent this year — more than double a January estimate.

Driving the pessimism was the region's biggest economy, Germany, which has been hit hard by the "near collapse" in global trade.

The EU now forecasts Germany will contract by a massive 5.4 percent this year as global demand dries up for the high-value goods such as cars and machinery that the country makes and exports.

Euro-zone exports are "forecast to suffer one of the worst setbacks on record" with a 13 percent slump this year, partly because the strong euro makes euro goods more expensive for U.S. and British customers.

The European Commission said more than 26 million people in the EU will be out of work next year as a contracting economy sheds an extra 8.5 million jobs — putting pressure on governments and central bankers to do more to alleviate the downturn.

Monday's forecasts are likely to cement market expectations that the European Central Bank will cut its benchmark interest rate by a further quarter percentage point to 1 percent on Thursday and unveil new measures — such as buying up corporate debt from the banks — to stimulate growth. European governments also may see renewed pressure to increase stimulus spending after shrugging off calls last month from the United States and others ahead of the Group of 20 summit. EU Economy Commissioner Joaquin Almunia said EU leaders could discuss a new effort in June.

European Union predicts deeper recession 05/04/09 [Last modified: Monday, May 4, 2009 9:52pm]
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