The European Union said Monday it is facing a "deep and protracted recession" with government spending the only source of growth this year.
The 16 nations that use the euro will shrink by 1.9 per cent in 2009, with the entire EU contracting 1.8 per cent, the European Commission forecasts.
It says 3.5 million jobs will disappear in the EU in the year ahead as business and household spending falls and banks tighten lending.
Government demand and investment will be the only source of growth -- but that carries a heavy price tag. Government deficits will hit the highest level in 15 years as they borrow heavily to stoke growth.
It says the economy would be faring much worse without current EU nations' plans to boost growth by spending 1 per cent of gross domestic product this year, which should help the economy expand by an extra 0.75 per cent.
The EU executive said the downswing will be particularly marked in Britain and more protracted in Spain.
It warned that the outlook was still exceptionally uncertain, describing the economic crisis as the worst faced by the world since the second world war.
It predicts a moderate recovery in 2010 when the EU could grow 0.5 per cent. The first green shoots could come in the second half of 2009 when the global economy may pick up.
But the EU warned that "the main issue is whether the recovery will be a lasting one."
In Europe, it warned that it could not rule out that "very weak economic sentiment may continue for some time as concerns about a long and deep recession spread, particularly with unemployment now on the rise."
Falling exports will hit Germany hard. The Europe's largest economy is also the world's biggest exporter and will likely shrink 2.3 per cent this year, it said.
It says the British economy will shrink 2.8 per cent this year, while France will contract by 1.8 per cent.
