The European Commission left its 2010 growth outlook for the euro zone unchanged on Thursday despite concerns about Greece and other reports painting an increasingly grim picture.
The euro zone should squeeze out 0.7 percent growth, it said and tweaked up its forecast for the first two quarters.
But other data showed a surprise drop in euro zone and French confidence and a fifth consecutive fall in lending to companies across the bloc.
Unemployment is also on the rise in France and Germany, helping fuel concerns about future job cuts that have led to a wave of strikes around Europe.
"The eurozone recovery is clearly struggling for momentum while underlying inflationary pressures remain muted," said Howard Archer, chief economist at IHS Global Insight.
The commission said it expected 0.2 percent growth from January to March, up from its November forecast of 0.1 percent.
The euro zone economy grew 0.1 percent in the fourth quarter of 2009, helped by a 0.6 percent consumption-led expansion in France but held back by stagnation in Germany.
An unexpected fall in Germany's Ifo business sentiment index this month has raised the possibility that the eurozone's largest economy could contract in the first quarter while consumer reports in France have pointed to a signficant pullback in shopping habits.
The European Commission said euro zone economic sentiment eased marginally in February, defying expectations for a rise.
The fiscal crisis in Greece has also dimmed the outlook. Warnings from ratings agency Standard & Poor's that it could cut the country's rating by one or two notches added to these concerns, helping the euro hit a one-year low against the yen on Thursday.
JOB CUTS
Thursday's reports reinforced expectations that the European Central Bank will keep its key interest rate at 1 percent for some time.
Money supply growth accelerated just 0.1 percent in January, while lending to euro zone firms fell to an 18-month low, the ECB said.
"For the ECB there is really no reason to fear inflation based on the money supply and credit figures … the chance of a rate hike this year is very remote," said Kenneth Broux, an analyst at Lloyds TSB.
France said on Wednesday that its headline jobless total rose 19,500 in January, up 0.7 percent from the previous month. German unemployment also rose by 7,000, although that was a smaller rise than had been expected.
Workers at France's Total refineries and air traffic controllers have been on strike this week over job cut fears.
A one-day general strike in Greece on Wednesday halted flights, train and ferries as thousands protested government austerity measures.
Concerns over the fiscal problems in Greece and other peripheral euro zone countries, have helped weaken the euro slightly against other currencies, providing one brightspot in an otherwise bleak outlook for Europe's exporters.
Italian business confidence rose for the fifth month running in February to reach its highest level since June 2008 as orders edged up and the production outlook improved sharply.
"Italian manufacturing is very dependent on exports and the improvement in confidence is probably linked to the depreciation of the euro," said Deutsche Bank economist Gilles Moec.
