The forecast marked a severe downward revision from the EC's last estimate in November, when it predicted that the eurozone economy would eke out growth of 0.1 per cent.

Unemployment levels

With the eurozone economy suffering from a 9.2 per cent drop in business investment this year, it too would only begin picking up in the middle of the year before managing to grow 0.4 per cent in 2010, the commission said.

At the same time, unemployment will climb to levels not seen in Europe for over a decade.

The commission forecast that the eurozone jobless rate would rise from 7.5 per cent in 2008 to 9.3 per cent this year and hit 10.2 per cent in 2010.

This would bring it over the 10 per cent mark for the first time since 1998.

With their economies in a tailspin, European governments pledged in December to pump a combined $265bn into a Europe-wide economic stimulus package.
 
Joaquin Almunia, the EU economic and monetary affairs commissioner, said: "The measures to stabilise 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."

Deficit surge

As governments commit billions of dollars to trying to revive their economies and bail out their banks, public deficits in the eurozone are expected to swell from 1.7 per cent of output in 2008 to four per cent in 2009 and 4.4 per cent in 2010.

However, the EC cautioned that some countries would see much more dramatic downturns than others, with the financial crisis and housing market crashes taking a heavy toll on the Irish and Spanish economies in particular.

Spain will see its unemployment rate surge from 11.3 per cent in 2008 to 16.1 per cent in 2009 and to 18.7 perc ent in 2010.

In Ireland, the deficit is expected to increase from 6.3 per cent in 2008 to 11 per cent in 2009 and 13 per cent in 2010.

Greece's deficit

Meanwhile, following a rise in Greece's deficit, Standard and Poor's has cut its rating on the country's debt.

However, Almunia dismissed concerns that the move targeting Greece was an ominous sign that the shared-currency bloc could break apart.

He said it was normal for markets to demand different rates according to the perception of risks.

"I am not worried at all by those who have announced for 10 years in a row that the euro area will split. Honestly I dont think that this is a real hypothesis," he said.