The eurozone economy is facing a prolonged recession with the prospects of a rebound in Germany failing to help lift the embattled region out of its downward economic spiral.
While key economic indicators point to growth in Germany - Europe's biggest economy – gaining momentum as the year unfolds, data released Friday showed its partners in the 17-member currency bloc facing another bleak year of fiscal austerity and recession.
The European Commission said it expected the eurozone economy to shrink by 0.3 per cent this year, but with German gross domestic product (GDP) expanding by 0.5 per cent this year before growing by a solid 2-per-cent in 2014.
"While most other eurozone countries are groaning under the burdens of reforms, austerity and recession, the German economy continues playing in a league of its own," said ING Bank economist Carsten Brzeski.
Further underscoring Germany's growth prospects in the coming months, the nation's closely watched business confidence index rose for the fourth consecutive month in February, surging to a ten-month high of 107.4 points.
"The Ifo has gone through the roof," said Commerzbank economist Ralph Solveen.
"This is a further indication that German economic growth is likely to recover this year, as exports should benefit from an improvement in world demand and progressive resolution of the European sovereign debt crisis," said Caroline Newhouse, economist with France's BNP Paribas.
The higher-than-expected rise in the Ifo index could point to Germany helping to haul the eurozone out of recession later in the year.
Meanwhile, however, the commission said in its latest growth projections released in Brussels that the eurozone is only likely to return to growth next year with the economy expanding by a modest 1.4-per-cent.
Adding to the downbeat mood in the eurozone, the European Central Bank released new data on Friday showing that banks paid back less than half of what was expected of their ECB emergency loans.
The ECB said that 356 banks plan to repay loans of 61.1 billion euros (80.5 billion dollars) by the end of the month.
Unlike large parts of the eurozone, unemployment in Germany is expected to tick down to 5.6 per cent next year as growth picks up speed, the commission's projections show.
At the same time, the jobless rate in Italy is forecast to rise to 12 per cent in 2014 and to remain above 26 per cent in Spain - the currency bloc's third and fourth biggest economies.
The result has been a renewed campaign in Europe to bring to an end the German-led austerity drive.
"With thousands of people in the streets across Europe to protest against austerity, the time has come to loosen its grip," said Hannes Swoboda from the European Parliament's socialist faction.
Highlighting the pressure on the eurozone states, the European Commission's projections showed France and Spain struggling to clean up their state finances against the background of an environment of slowing growth.
The eurozone lurched into recession during the third quarter last year.
EU member states are all mandated to eventually bring their deficits below 3 per cent of GDP, with sanctions at the disposal of the bloc if they do not comply.
Instead of a previous forecast of 2.6 per cent, the commission now sees the eurozone's overall budget deficit creeping up to 2.8 per cent this year.
Madrid had been tasked with slashing its deficit to 6.3 per cent of gross domestic product (GDP) last year, 4.5 per cent this year and 2.8 per cent in 2014. Instead, the shortfall reached 10.2 per cent last year and is on track to hit 7.2 per cent in 2014, the commission warned.
Particularly troubling, was the grim state of France's public finances with the eurozone's second biggest economy essentially stagnating with growth coming in at a meagre 0.1 per cent.
France has already emerged as a source of concern for markets and investors with economists criticising the nation's political establishment for failing to press on with tough reforms to help boost the nation's global competitiveness.
Now, the commission expects the French shortfall to reach 3.7 per cent this year and 3.9 per cent in 2014 unless new policies are implemented.
But while its eurozone partners battle to slash high deficit and debt levels, Germany is predicted to post a 0.2-per-cent budget deficit. The German statistics office said the nation had a budget surplus last year of 0.2 per cent - its first in five years.