RTTNews - Thursday, the World Bank said economic activity in the ten eastern members of the European Union will contract 3% this year and stagnate around zero percent next year.

In its EU10 regular economic report, the World Bank said global economic and financial crisis is having a deepening impact on households in this region, even though the policy responses were encouraging. The global lender urged the region's governments to overhaul their public finances to help mitigate the social costs of the crisis.

The report also said the unemployment rate for the region is likely to increase to 10.4% in 2010 from 6.5% in 2008 or to 5 million people from 3 million. This rising unemployment could derail any nascent recovery, as it could take years to reabsorb excess labor pools, the bank said.

The joblessness created by the economic crisis translates into lower household incomes, remittances, and consumer demand, said Kaspar Richter, Senior Economist in the World Bank's Europe and Central Asia Region.

Moreover, the report said the contraction in global spending on capital goods and durables has hurt manufacturing exports, such as automobiles and electronics. After years of high profitability, the soundness of the financial sector is threatened by the economic recession.

According to the report, the economic outlook remains uncertain. Some countries may experience a stabilization process that is more protracted than anticipated. Other countries that have weathered the crisis better due to sound economic fundamentals may still be at risk from a worsening external environment.

Going from slump to stabilization in the EU10 countries hinges critically on the success of policies to maintain strong trade, capital, and labor linkages. This requires policy coordination of the EU10 countries with other EU countries and advanced economies along three dimensions - fiscal, financial, and social, Richter said.

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