A woman stands in front of a banner displaying the stars of the European Union flag before a ceremony to mark the start of the European Union?s Lisbon reform treaty in Lisbon December 1, 2009.
A woman stands in front of a banner displaying the stars of the European Union flag REUTERS/ Nacho Doce

(REUTERS) -- The euro zone economy's shrunk at the end of 2011 as the sovereign debt crisis crushed a recovery and looked set to push the bloc into mild recession, but a north-south divide was evident as France grew while Italy slumped.

Economic output in the 17-nation currency area fell 0.3 percent in the fourth quarter from the third, as expected by economists in a Reuters poll, the European Union's statistics office Eurostat said on Wednesday.

The slump was the first contraction since the second quarter of 2009 at the height of the global financial crisis, when output shrunk 0.2 percent, according to Eurostat.

The wider, 27-nation EU economy also shrunk 0.3 percent in the October to December period.

Underscoring just how poisonous the debt crisis has been for businesses and the economy, gross domestic product grew 0.7 percent in the fourth quarter compared to a year earlier after posting 2.4 percent growth at the start of 2011, when Europe was recovering strongly from the 2008/2009 global financial crisis.

Despite signs of stabilisation in January, helped by calmer capital markets and stronger growth in the United States, analysts in a Reuters poll predict the economy will still shrink 0.4 percent throughout 2012, returning to growth in 2013.

That is in line with the International Monetary Fund forecast of a 0.5 percent contraction in 2012.

Eurostat did not give a country-wide breakdown of the data in its estimate, but data released separately showed the widening gap between the euro zone's prosperous north and its poorest south.

France's economy showed surprise growth in the fourth quarter as companies invested more and consumers continued to spend. Germany's economy contracted slightly in the fourth quarter but still performed better than forecast.

Meanwhile, Greece shrank 7 percent year-on-year in the fourth quarter, figures showed, while Portugal shrank 1.3 percent on the quarter.

The Italian economy contracted by 0.7 percent quarter-on-quarter and joined Belgium, Greece and Portugal in recession having already shrunk in the third quarter of 2011.

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