THE EURO zone economy shrank more than estimated earlier in the fourth quarter of 2008 and the third quarter was weaker too, revised data showed, pointing to an even worse 2009 figure than feared and knocking down the euro.

Gross domestic product in the 15 countries that were using the euro in the fourth quarter contracted by a record 1.6 per cent against the previous three months, rather than the previously reported 1.5 per cent, EU statistics office Eurostat said. The zone has since expanded to 16 countries.

The euro fell against the dollar to $1.3240 from $1.3330, as the data suggested the 2009 euro zone contraction could be deeper than previously expected.

“The mechanical implication of fully ‘locking in’ this news would be to lower our 2009 forecast to -3.3 per cent from our current forecast of -3.2 per cent,” said James Ashley, economist at Barclays Capital Research.

Economists said the first quarter of 2009 could be just as bad as the last three months of 2008, or even worse.

“It seems that the first quarter will be absolutely catastrophic – if you look at the components of GDP in the fourth quarter, there is no positive impetus,” said Joerg Angele, economist at Bayerische Landesbank.

He forecast a first quarter GDP slump of between 2 and 2.5 per cent and a contraction of 3.5 per cent for the whole of 2009.

The data was also likely to add to pressure on the European Central Bank to embark on unconventional policy-easing measures next month, on top of an expected 25 basis point rate cut to 1 per cent, economists said.

“The data raises the odds that we will see unconventional measures from the ECB in May,” said Martin van Vliet, euro zone economist at ING Bank.

He expected a lengthening of ECB loans from the current six months to 12 or even longer, and said the bank could copy the Bank of Japan in providing subordinated loans to banks, which would boost their capital and therefore help boost lending.

The revised fourth quarter drop, as the previous one before it, is the deepest ever quarterly fall. It was brought on by a collapse in external trade, which on a net basis subtracted 0.9 percentage points from the final result.

Plunging investment took away another 0.9 points – more than the previously reported 0.6 point deduction.

But the plunge in private consumption appeared less dramatic than before, taking away a further 0.2 points against the previously reported 0.5 points.