The euro zone contracted 0.6 percent in the fourth quarter of 2012, the bloc's worst quarterly output since the start of the global financial crisis.
It marked the first time that the entire region failed to grow during any quarter of the calendar year, according to the Financial Times.
The bloc's gross domestic product fell by 0.5 percent in 2012 as a whole, Reuters reported.
Forecasts by analysts had predicted a 0.4 percent contraction in the euro zone's GDP for the last quarter of 2012.
Both strong and weak countries fell short of expectations. Europe's biggest economy, Germany, experienced its deepest contraction since the beginning of the fiscal crisis. France, the region's second-largest economy, also performed worse than expected.
Italy's economy shrank 0.9 percent, more than expected.
"These are horrible numbers, it's a widespread contraction, which does not match this positive picture of stabilisation and positive contagion," said Carsten Brzeski from ING, BBC reported.
The data only showed worse news for Portugal and Greece.
Greek GDP contracted for an 18th consecutive quarter, reported Bloomberg News. Greece's output in the last three months of 2012 fell 6 percent below the rate of the same period in the year prior, while unemployment hit a new high of 27 percent — more than double the euro zone's average.
Portugal, considered the euro zone's poster child for austerity cuts, had some of the worst results, the Guardian reported. Its fourth-quarter GDP dropped 1.8 percent.
However, economists remain optimistic for the outlook for countries like Germany, Italy and Spain, which all show signs of stabilization.