The Eurozone faces another full year of recession in 2013 with economic output set to shrink by 0.3%.
It comes after a 0.6% contraction last year.
According to the European Commission winter economic forecast there will be a return to growth for the Eurozone in 2014, when growth will hit 1.4%.
The Commission says leading indicators suggest that GDP in the EU "is now bottoming out" and it expects economic activity to gradually accelerate.
The pick-up will initially be driven by increasing external demand, it adds.
Domestic investment and consumption are projected to recover later in the year, and by 2014 domestic demand is expected to take over as the main driver of GDP growth.
Commission Vice-President for Economic and Monetary Affairs is Olli Rehn.
"The ongoing rebalancing of the European economy is continuing to weigh on growth in the short term" he said.
"The current situation can be summarised like this: we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past, and growing investor confidence in the future".
"We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is underway, delaying the needed upswing in growth and job creation" he added.
Gradual pickup of investment
It says a combination of measures typical in the aftermath of a deep financial crisis - such as uncertainty and redeployment of resources - is holding back domestic consumption and investment.
However it believes a return of confidence among households and businesses should reduce the negative impact of these factors.
"As the easing of financial market tensions is expected to feed through into better lending conditions, this should open the way for a gradual return of consumption and investment growth in the course of 2013" the report says.
But it also concludes that the current weakness in economic activity is expected to lead to an increase in unemployment this year to 11.1% in the EU and 12.2% in the Euro area.
