Economies in the Eurozone, the group of 16 countries that use the euro, shrank by 1.5 per cent in the last quarter of 2008.

This is the region's third quarterly contraction in a row and represents the Eurozone's sharpest slump since the euro was created in 1999.

Newcomers to the EU also recorded sharp contractions, with Hungary entering recession, and the Czech and Estonian economies recording a drop  in growth.

Germany's economy was the most severely hit in the Eurozone, with GDP shrinking 2.1 per cent, the biggest quarter-on-quarter reduction since 1990.

In France, a 1.2 per cent quarterly contraction was recorded, and in Italy the economy shrank by 1.8 per cent, pushing it into its deepest recession since 1980.

The gloomy economic news poured in as G7 finance ministers met in Rome to discuss the and demonstrators protested against the Italian government's handling of the economy.

Further rate cuts?

For the EU as a whole, including 12 other countries that were not using the euro at the end of 2008, output also slumped by 1.5 per cent on a quarterly basis, following a 0.2 per cent decline in the third quarter.

Analysts said waning trade volumes were to blame for the drop in Eurozone output, along with a relatively strong euro.

"At the heart of this is the decline in manufacturing exports that can perhaps predominantly be blamed on the uncompetitive euro together with the undeniable fact that as this is a global recession, few nations are buying," Howard Wheeldon, a senior strategist at brokerage firm BGC Partners, said.

Aurelio Maccario, chief Eurozone economist for the Milan-based UniCredit Group, said the GDP performance could mean further rate cuts from the European Central Bank.

He said the group expected a 50 basis points cut from the current two per cent rate.