Berlin - The European economy shrank during the second quarter, data released Thursday showed, amid worries that the region's slowdown could gain momentum in the run-up to the end of the year.

The 15-member eurozone contracted by 0.2 per cent during the three months to the end of June, the European Commission's Statistics Office Eurostat said, as high inflation hit consumer spending and a strong euro as well as weaker global growth undercut the currency bloc's export machine

"The eurozone economy is on the edge of a recession," said Commerzbank economists Christoph Weil and Michael Schubert in a note to clients.

The eurozone grew quarter on quarter at 0.7 per cent during the first three months of the year. The second-quarter growth rate was in line with analysts' forecasts.

At the same time, year-on-year growth in the eurozone slipped back from 2.1 per cent in the first quarter to 1.5 per cent in the three months to the end of June, Eurostat said.

Earlier in the day the eurozone's two biggest economies also reported a contraction in the second quarter, with the German economy shrinking by a less-than-forecast 0.5 per cent after the currency bloc's biggest economy grew at a revised 1.3 per cent during the first quarter.

Nevertheless, it was the first fall in the German economy in almost four years.

Data published Thursday showed economic growth in France slowing from 0.4 per cent during the first quarter to a bigger-than-forecast 0.3-per-cent slump in the latest three months.

The second-quarter contraction in France represented the first time in about five years that the economy has shrunk in the eurozone's second biggest member.

However, recently a steady stream of gloomy economic sentiment surveys and downbeat economic numbers has helped to raise concerns about the outlook for the European economy.

Also overhanging the European economic outlook is the threat posed by high inflation.

Eurostat said Thursday annual consumer prices posted a 4-per-cent gain in July, down slightly down from its preliminary 4.1-per-cent estimate.

However, inflation in the eurozone remains at double the ECB's target of "close to, but just below 2 per cent."

Comments last week from European Central Bank chief Jean-Claude Trichet that the eurozone economy faced weak growth in the coming months resulted in the euro suffering its biggest weekly drop, pushing the common currency down to near a six-month low against the greenback of about 1.50 dollars.

Moreover, the slowing growth is likely to help to dampen inflationary pressures in the coming months and mean that interest rates in the eurozone will be on hold for sometime.

In its monthly report released Thursday, the ECB insisted that it remained focused on the threat posed by inflation.

But it warned that "the uncertainty surrounding (the) outlook for economic activity remains high, owing to, among other things, the very high and volatile levels of commodity prices and the ongoing tensions in financial markets.

"Overall, downside risks prevail," the bank's monthly bulletin said.

The ECB left its benchmark refinancing rate on hold at 4.25 per cent last week.

This also follows fears that several eurozone economies which have been hit badly by the global financial market and credit crisis - such as Spain, Ireland and Italy - could be already sliding into recession.

Italy's statistics office said last week that the eurozone's third economy shrank by 0.3 per cent quarter on quarter, resulting in zero growth on the year. This followed a 0.4-per-cent slump during the first quarter.

On Wednesday, Eurostat said eurozone industrial production slipped by 0.5 per cent in June compared to the same month last year. Economists had predicted a modest 0.2-per-cent increase in June.

The economy in the 27-member European Union slipped by 0.1 per cent during the second quarter to produce a year-on-year expansion rate of 1.7 per cent.

This compared to a 0.7-per-cent growth rate during the first three months of the year. The EU clocked up a year-on-year expansion rate of 2.3 per cent during the first quarter.

The EU's new member states again recorded the fastest growth rates in the Brussels-based bloc, with the economy in Slovakia, which is to become the eurozone's 16th member state in January, racing ahead by 1.9 per cent during the second quarter.