European economy 'will shrink 4%'

The eurozone and EU economies will contract by 4% this year the European Commission has forecast, in a massive revision from its earlier prediction.

And unemployment in the 16 countries using the euro is expected to rise to 11.5% in 2010, and to reach 10.9% in the 27-nation EU next year.

In January, the commission said the eurozone would shrink by 1.9% in 2009 and grow by 0.4% in 2010.

Now it puts eurozone GDP growth for next year at -0.1%.

Countries needed to focus on cleaning up banks' toxic assets, the commission said.

"The European economy is in the midst of its deepest and most widespread recession in the post-war era," said EU Economic and Monetary Affairs Commissioner, Joaquin Almunia.

"But the ambitious measures taken by governments and central banks in these exceptional circumstances are expected to put a floor under the fall in economic activity this year and enable a recovery next year."

The commission also expects inflation to fall well below the European Central Bank's target this year and next.