GDP in the Euro area and the EU27 fell by 0.2 per cent in the second quarter of 2012, figures from Eurostat -the statistical office of the European Union - have indicated.
It follows zero growth in both zones in the first quarter of the year and takes the Eurozone closer towards its second recession in three years.
Strong economic performance from Germany and France was pulled down by sharp contractions in Greece, Italy, Spain and Finland.
Germany's economy expanded by 0.3 per cent in the second quarter, while growth in France remained unchanged. Leading economists said that this would not be enough to boost Europe's GDP, and warned that output is likely to drop in coming months.
Both the Euro area - the 17 countries where the euro is the main currency - and the EU27 GDP are down on the same quarter of the previous year, down 0.4 per cent and 0.2 per cent respectively.
However, the Financial Times said the one per cent fall in Finland's GDP 'illustrated how the sovereign debt crisis that has been troubling southern Europe is spreading to the bloc's economically stronger core northern states.'
The biggest drop in the EU's GDP came from Greece down 6.2 per cent and Portugal down 3.3 per cent on the year.
Elsewhere, annual inflation in the Euro area remained 'steady' at 2.4 per cent in July, the same level for the third consecutive month. It has fallen slightly compared to 2.6 per cent in the same month in the previous year.
EU inflation for the 27 member states was slightly higher at 2.5 per cent in July, also stable compared to June. The figure is down from 2.9 per cent a year earlier.
The lowest rates were observed in Sweden (0.7 per cent), Greece (0.9 per cent) and Germany and Latvia (both 1.9 per cent), with the highest in Hungary (5.7 per cent), Malta (4.2 per cent) and Estonia (4.1 per cent). Overall, compared to the previous year annual inflation fell in twelve of the member states, remained stable in one and rose in fourteen.
Figures from the Office for National Statistics last week revealed the UK's inflation rate for July was 2.6 per cent, slightly above the EU average, after unexpectedly rising from 2.4 per cent in June.
The Financial Times reported: "European economists' have been stressing for months that inflation is one problem that the eurozone does not have at the moment. What is worrying them more is plummeting business confidence and a sharp fall in manufacturing activity, which has forced many companies to shed thousands of jobs."