BRUSSELS - The eurozone faces continued contraction in 2013, with its economic output expected to shrink by 0.3 percent, said the winter forecast released by the European Commission on Friday.

It will come after a 0.6-percent contraction last year for the debt-laden 17-state monetary union.

As for the 27-nation EU, the report projects a 0.1-percent growth in 2013.

The report attributes poor economic performance in both areas to disappointing economic activities despite improvement in financial market conditions since last summer.

"However, leading indicators suggest that GDP in the EU is now bottoming out and we expect economic activity to gradually accelerate," said the report.

"We have disappointing hard data from the end of last year, some more encouraging soft data in the recent past, and growing investor confidence in the future," said EU Commissioner for Economic and Financial Affairs Olli Rehn.

"The decisive policy action undertaken recently is paving the way for a return to recovery. We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is underway, delaying the needed upswing in growth and job creation," Rehn added.

The winter economic forecast expects a year-on-year growth of 1.4 percent in the eurozone and 1.6 percent in the EU in 2014.

The report expects a gradual pickup of consumption and investment after a series of important policy measures since last summer, which will solve the problem of a combination of cyclical weakness, uncertainty and the protracted adjustment of balance sheets and redeployment of resources across the economy.

Besides, return of confidence in household and business, as well as easing of financial market, will also help open the way for a gradual return of consumption and investment growth in the course of 2013, according to the report.

However, the report expects unemployment rates in both areas to continue rising in 2013 despite the above-mentioned efforts, with jobless rates to hit 11.1 percent and 12.2 percent in the EU and the eurozone respectively.