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EU Economy Worse Than Predicted

Europe has received more bad economic news, with the 27-member European Union announcing the business downturn would be far worse this year than its earlier predictions.

The European Union's economy is expected to shrink by four percent this year - more than twice what was estimated in January. And that is only part of the grim news that was delivered by the European Commission - the bloc's executive arm.

Unemployment increasing

Unemployment in the 27-member EU is expected to reach 11.5 percent by 2010 - the highest level since World War II. And as governments invest heavily in economic stimulus plans, their deficits are expected to soar to about 7.5 percent of gross domestic product - more than twice the limit allowed under EU rules.

But EU economic commissioner Joaquin Almunia tried to offer a bright side to the gloomy news he delivered to reporters in Brussels.

"Some positive signals have appeared in the last weeks, including the evolution of the financial markets, improvement in business expectations and some real indicators, such as export data in Asia, pointing, all of them, to a stabilization of the economy in the second part of this year and a gradual recovering in 2010," Almunia said.

Situation likely to get worse

But the economic situation is likely to get worse in Europe before it gets better. The European Union predicts the German economy, Europe's largest, is likely to contract by 5.4 percent this year, a larger decline than the EU average. The Latvian economy is expected to be hit even harder, shrinking 13.1 percent in 2009, while Ireland's economy is expected to shrink by nine percent.

The European Union predicts the bloc may begin to slowly recover next year, but only if the banking system and international trade pick up.