Euro zone economic growth will slow sharply next year as weak confidence undermines investment and consumption and tighter fiscal policies reduce domestic demand, the European Commission said today.

"Growth has stalled in Europe, and there is a risk of a new recession," vice-president for economic and monetary affairs Olli Rehn said in a statement.

In its twice-yearly economic forecasts for the 27 countries of the European Union, the EU executive said it expected economic growth in the 17 countries sharing the euro to slow to 0.5 per cent in 2012 from an expected 1.5 per cent this year.

Growth is to pick up to 1.3 per cent in 2013, the commission forecast. The European Central Bank forecast in September that euro zone growth in 2012 would be between 0.4 and 2.2 per cent after 1.4-1.6 per cent this year.

The commission expects the euro zone economy to contract 0.1 per cent quarter-on-quarter in the last three months of 2011 and sees zero growth quarter-on-quarter in the first three months of 2012.

"We do not expect a recession in our baseline scenario. But the probability of a more protracted period of stagnation is high. Given the unusually high uncertainty around key policy decisions, a deep and prolonged recession complemented by continued market turmoil cannot be excluded," the commission said.