Euro coins in a montage
Credit default swaps used to hedge against Greek bonds will pay 78.5 cents on the dollar, according to results of an auction Monday conducted by Markit and IntercontinentalExchange's Creditex subsidiary. Reuters

The economic output of the 17-nation Eurozone declined year-over-year by 0.3 percent in the fourth quarter of 2011, a more-optimistic-than-expected outcome that is raising hopes Europe will be able to avoid a recession.

The reading, released Wednesday by the European Union's statistical office, was better than the decline of 0.4 percent economists surveyed by Dow Jones Newswires expected.

The pace of contraction, however, was somewhat slower than many had feared, mainly thanks to an unexpected expansion in French GDP and a smaller-than-expected drop in German GDP, Martin van Vliet, an economist at ING, told The Wall Street Journal.

Besides the French and German indexes mentioned by van Vliet, notable data points indicated a contraction of 0.5 percent in Italy's quarterly GDP, which places that country on track for a recession unless major improvements are seen in the coming weeks. Greece's GDP imploded in the quarter, down seven percent from previous three-month period.

The better-than-expected overall data, combined with positive readings in purchasing managers' indices across the region earlier this month, is prompting some economists to revise their previous forecasts, which called for a recession to officially be seen in the Eurozone during the first quarter of 2012. A recession is generally understood to occur when an economy contracts for two consecutive quarters.

With more positive signs coming from January's confidence surveys, our updated MICA model points to zero or slightly negative growth in Q1, although with very little information available, Miguel Jiménez, an economist for Spanish bank BBVA whose predictions were in line with results, wrote in a research note.

At other banks, like finance giant Crédit Suisse, economists who had contraction revised their forecast for the first three months of 2012, saying output growth was not likely to be flat.