The economic outlook in Europe continues to look grim, with officials conceding countries using the euro currency will shrink further into recession over 2013.

The European Commission says the eurozone will shrink 0.3 per cent this year, off the back of a 0.6 per cent fall last year.

Record unemployment and banks not lending have been blamed for the latest figures, delaying the prospect of growth in the eurozone until 2014, when the economy should gain 1.4 per cent.

Millions more people face losing their jobs, with already record unemployment expected to rise markedly right into 2014.

"We must stay the course of reform and avoid any loss of momentum," EU economic affairs commissioner Olli Rehn said.

He argued the drag on growth and spike in joblessness was a natural consequence of "the ongoing rebalancing of the European economy."

But in the meantime, unemployment will hit 12.2 per cent for 2013 and remain little changed next year after 11.4 per cent in 2012 when the jobless totalled nearly 19 million.

Under pressure from the central government in Brussels, national governments face a tricky balancing act getting their finances in order without exacerbating social unrest and aggravating the recession by too many spending cuts.

The commission said Spain, France and Portugal all failed to meet deficit-cut targets.

Much attention was on France where the public deficit is set to come in at 3.7 per cent of output this year and 3.9 per cent next year.

The eurozone's second-biggest economy, France had said it would this year get back within the EU's deficit ceiling of 3.0 per cent, even if Brussels a few months ago had forecast a deficit of 3.5 per cent.



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