By Fergal O'Brien Nov. 3 (Bloomberg) -- The European Commission said the region's economy probably entered a recession this year and will stagnate in 2009, increasing pressure on political leaders to collaborate on measures to tackle the financial crisis. Economic growth in the euro area will slump to 0.1 percent next year, the worst performance since 1993, the Brussels-based commission said today. It also estimated that gross domestic product will shrink for three consecutive quarters this year and cut its forecast for full-year 2008 growth to 1.2 percent from 1.3 percent previously. Euro-area finance ministers meet today to try to overcome the worst financial crisis since the Great Depression. While France and Germany led European governments in committing a combined $1.7 trillion to protect the region's banks, and the European Central Bank now offers unlimited loans in an attempt to get credit moving, there has been no unified government response. Chancellor Angela Merkel last week proposed a 50 billion-euro ($64 billion) package to revive the German economy. ``A recession in 2009 seems now unavoidable,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc in London. ``Today's new GDP forecast of 0.1 percent for 2009 by the European Commission still looks too optimistic to us.'' European manufacturing contracted at a record pace in October and faster than initially estimated, according to separate figures published today. Figures last week showed that executive and consumer confidence has dropped to a 15-year low. Earlier Gain Stocks and the euro pared gains after today's reports. The euro was at $1.2848 as of 11:55 a.m., compared with $1.2898 earlier, while the Dow Jones Stoxx 600 was up 0.4 percent at 222.92, paring an earlier gain of 1 percent. European 10-year government bonds advanced, with the yield on the German bund, Europe's benchmark government security, falling 4 basis points to 3.85 percent. The yield on the two- year note was little changed at 2.55 percent. The yield slid 96 basis points in October, for its fourth monthly loss. The commission said GDP in the euro region will probably contract by 0.1 percent in both the third and fourth quarters after shrinking 0.2 percent in the second quarter, pushing the region into a recession, defined as two straight quarters of contraction. ``The economic horizon has now significantly darkened,'' European Economic and Monetary Affairs Commissioner Joaquin Almunia said in today's report. ``We need a coordinated action at the EU level to support the economy similar to what we have done for the financial sector.'' Economic Fallout Government measures to tackle the economic fallout from the credit crunch have so far been piecemeal, with governments including Italy, France and Germany planning their own tax breaks or stimulus packages. The EU in late October pledged to present a recovery plan this month and EU leaders are scheduled to meet this week to coordinate their position before a summit of world leaders hosted by President George W. Bush on Nov. 15. Paris-based L'Oreal SA, the world's largest cosmetics maker, on Oct. 31 cut sales and profit forecasts for the third time in less than four months. German software maker SAP AG last week withdrew its full-year sales outlook and Deutsche Lufthansa AG, Europe's second-biggest airline, lowered its earnings forecast. In addition to flooding markets with cash, central banks across the world have also begun slashing interest rates to limit the economic impact of the financial crisis. The European Central Bank is set to cut its benchmark rate this week for the second time in less than a month after the U.S. Federal Reserve lowered its rate to match the lowest level in a half-century. Policy makers in Japan, India and Norway have also cut borrowing costs. Largest Economy The Irish, Spanish and U.K. economies will all contract next year, while Germany, Europe's largest economy, France and Italy will stagnate. For 2010, the EU sees the overall euro-area economy expanding by 0.9 percent. The slump will push the euro region's unemployment rate to 8.4 percent next year from 7.6 percent this year. The slowdown, coupled with the drop in oil prices, will also cool inflation, which may ease to 2.2 percent in 2009 from 3.5 percent this year. Growth is ``at a standstill'' in many European economies, Almunia said. ``The economic situation is exceptionally uncertain.'' To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.

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