The EU economy will shrink nearly 2.0 per cent this year as one of the worst recessions on record drives unemployment and government deficits to levels not seen for years, the European Commission forecast today.

After growing 1.0 per cent in 2008, the 27-nation economy of the European Union is poised to contract by 1.8 per cent this year, the EU's executive arm said in a dramatic downward revision of its forecasts.