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The European Commission has reported that economic growth is expected to grind to a halt in 2009, dropping to 0.2 per cent after halving to 1.4 per cent this year.

'The economic horizon has now significantly darkened as the European Union economy is hit by the financial crisis that deepened during the autumn and is taking a toll on business and consumer confidence,' said Joaquín Almunia, economic and monetary affairs commissioner. 'Emerging economies are holding up better than the EU and the US so far, but even they are likely to escape unscathed.'

In the commission's autumn economic forecast for 2008-2010, it saidthat EU economies would be 'strongly affected' by the current globalfinancial crisis, with unemployment figures expected to rise by 1 percent next year and public finance deficits increasing to 2.6 per cent by 2010.

Despite this, inflation is expected to fall to below 2.5 per cent in 2009 and 2.4 per cent in 2010 in the EU, reflecting an increase in commodity prices during the summer period.

'The Commission has set out a framework for recovery that aims to boost investment, sustain employment and demand,' Mr Almunia added. 'We are looking forward to hearing member states views and, especially, for a joint approach at the EU level.'

In the forecast, the EC said that the recession would hit the UK harder than any other mature European economy, with economic growth down 0.1 per cent in 2009 and up just 0.4 per cent in 2010.

UK unemployment is expected to rise to 7.1 per cent next year from 5.3 per cent in 2008, with government budget debt forecast to jump to 5.6 per cent next year, or €80bn.

Only Estonia (down 1.2 percent) and Latvia (down 2.7 per cent) are expected to suffer deeper recessions, the report said.