The European Commission said Monday both the 27-nation EU and the 16 countries that use the euro currency will shrink by 4% this year, more than twice as it had predicted at the start of this year.
The commission said Europe's economy would not start recovering until the second half of next year.
It also predicted the unemployment in the 16 countries that use the euro currency will rise to a record of 11.5% by the end of next year.
Germany, which is Europe's biggest economy, will contract by an estimated 5.4% as global demand dries up for its high-value goods such as cars and machinery, the European Commission said. In January, the EU thought Germany would only shrink 2.3% this year.
The European economy is in the midst of its deepest and most widespread recession in the post-war era, said EU Economic and Monetary Affairs Commissioner, Joaquin Almunia.
He also said the EU now expected the economy to start bottoming out in the middle of this year as the fiscal stimulus measures and the bank rescue plans are expected to start bearing fruit in the next quarters.
The commission also forecasts this year that Britain and Italy will shrink by between 4%-4.5%, while France will post a smaller 3% drop and Spain will also likely shrink by 3%.
EU now expects euro-zone inflation by 0.4 percent this year and said lower inflation and interest rates may help support the economy by giving people more money to spend and less to repay on housing loans.