The eurozone's economy will contract 0.3pc this year as weak internal demand fails to compensate for a rising demand from further afield, the Dublin-based Economic and Social Research Institute (ESRI) said in a report compiled with nine other European think tanks.
The report predicts a "recovery in confidence" in some major economies this year but cautions it will be 2014 before the single-currency bloc enjoys real growth at around 1.3pc of gross domestic product.
The think tanks say that "unnecessary" austerity in major economies is adding to Europe's woes and curbing growth at a time when it should be rising. Several European economies are in recession. Output growth in Germany has slowed while the French economy is stagnating, it adds.
"While there is no escaping austerity in the countries with serious financial problems, it is unnecessary for the rest of the euro area to also implement tough budgets," said ESRI economist John FitzGerald.
"A more coordinated fiscal policy in the euro area could return Europe to growth this year, while also aiding the financially distressed countries' exit from the crisis."
Unemployment in the single-currency area is seen spiking at 12.4pc this year – just two percentage points below the Irish average.
"The situation is most desperate in Spain and Greece, where unemployment rates are in excess of 25pc, and a severe deterioration has also been registered in Cyprus, where the unemployment rate jumped by four percentage points to almost 15pc," the report says.
"At the same time, in Ireland, Portugal and more recently also in Italy, the labour market seems to have stabilised, although with unemployment at very high levels."
The labour market has remained robust in countries such as Germany, Austria and Finland, where unemployment rates have remained constant or declined from already low levels, it adds.
The report was written by think tanks from Poland, Holland, Germany, Finland, Britain, France, Italy and Austria.