The output decline in the Euro Area accelerated in the first quarter of 2009, as real GDP in the single currency block dropped by 2.5 per cent on a quarterly basis as compared to the 1.8 per cent fall recorded in the final quarter of 2008. We forecast that in 2009 the Euro Area economy will contract by 4.6 per cent in annual terms. The contraction will be driven both by severe declines in domestic demand and a collapse in external demand. In 2010 growth in the Euro Area should pick up modestly. We predict that real GDP will rise by 0.3 per cent next year on the back of a gradual global recovery, the effects of recent declines in risk premia, which point to easing credit conditions, and the stimulus provided by monetary and fiscal policy measures taken to counteract the recession.