The European Union said Europe faces a "deep and widespread recession" and that unemployment will rise sharply over the coming two years.
It said both the 27-nation EU and the 16 countries that use the euro currency will shrink 4 percent this year, way more than its previous forecasts.
It added that some 8.5 million jobs will disappear in the EU in 2009 and 2010, more than wiping out the number of new jobs created in the last two years.
The EU also predicts a subdued recovery next year, but only if the banking sector and world trade start to recover.
Germany's economy will contract 5.5 percent this year, Britain and Italy will shrink by between 4 percent to 4.5 percent, while Spain and France will post a 3-percent drop, the EU added.