Euro Zone Economy to Shrink this Year: EU Forecast

The euro zone economy will contract for the first time this year and barely grow in 2010 while inflation will remain below the European Central Bank target, the European Commission forecast on Monday.

The Commission said gross domestic product in the 16 countries using the euro would shrink 1.9 percent in 2009, and grow only 0.4 percent in 2010.

Annual inflation would be 1.0 percent in 2009 and 1.8 percent 2010, the Commission forecast.

"The measures to stabilize the financial markets, the easing of monetary policy 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," Economic Commissioner Joaquin Almunia said in a statement.

The European Central Bank wants to keep inflation below, but close to 2 percent and has cut interest rates by a total of 225 basis points in four moves since October as the economy and inflation slow sharply.

The bank forecast on Dec. 4 that 2009 growth in the euro zone would be in a range of -1.0 to 0.0 percent and between 0.5 and 1.5 percent in 2010.

The ECB forecast inflation in 2009 in a range of 1.1-1.7 percent and 1.5-2.1 percent in 2010.

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