BRUSSELS - THE European Central Bank expects the eurozone economy to shrink by 0.5 per cent next year, with the contraction possibly reaching 1.0 percent, ECB president Jean-Claude Trichet said on Thursday.

'On the basis of our current analysis and assessment we see global economic weakness and very sluggish domestic demand persisting in the next few quarters,' he told a press conference.

While the eurozone economy was forecast to grow by 1.0 per cent this year, Mr Trichet said it was set to slow sharply and contract by 0.5 per cent on average next year but possibly by as much as 1.0 per cent.

Mr Trichet said that the latest ECB staff forecasts marked a 'substantial downward revision' from estimates dating from September, when the eurozone economy was predicted to grow 1.4 percent in 2008 and 1.2 per cent in 2009.

With the 15-nation zone facing a sharp downturn and inflation falling fast, the Frankfurt-based ECB slashed its main interest rate by an unprecedented 0.75 percentage points in a monetary policy meeting held in Brussels.

Mr Trichet said that a 'considerable easing in global commodity prices' had helped bring eurozone inflation from a record 4.0 per cent in June and July down to 2.1 per cent in November.

'Looking forward, commodity prices and weakening demand lead us to conclude that inflationary pressures are diminishing further,' Mr Trichet said.

The ECB cut its 2008 inflation forecast to 3.3 per cent from 3.5 per cent previously and slashed its 2009 estimate to 1.4 per cent from 2.6 per cent, he said. -- AFP