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Is the euro zone already running out of good news?

Siegfried Layda | Photographer's Choice RF | Getty Images

It was all looking so good for the euro zone for a while, with a return to economic growth and increasing manufacturing activity appearing to herald a recovery after a year and a half of recession. But now analysts warn that the euro zone could be returning to the bad old days.

The 17-country euro zone pulled out of its 18-month stretch of negative growth – and the longest contraction in continental Europe in over 40 years -- in the second quarter, with gross domestic product expanding by 0.3 percent from the first three months of the year.

Manufacturing in the euro zone, meanwhile, continued its recovery in October, with almost all countries in the 17-strong single currency bloc posting growth in the sector.

(Read more: Turning point or false hope: what next for Europe?)

On Thursday, however, the region could be brought back to earth with a bump as Europe's statistics agency releases its third-quarter flash gross domestic product (GDP) estimates. Analysts told CNBC they expect the results to show a slowing rather than acceleration of growth.

Economists at Daiwa Capital Markets told CNBC that that although the region would report an expansion in economic activity for the second successive quarter as the "periphery" countries of Greece, Italy and Spain continue to struggle. Daiwa expects the euro zone to show some growth but at a softer pace – 0.2 percent -- and would not augur a bounce back to growth.

"The periphery is likely to remain (on aggregate) a drag on growth in coming quarters," Daiwa's Emily Nicol told CNBC ahead of the data. "We would expect the pace of recovery in the euro area as a whole to be maintained -- and not to accelerate -- over the near term."

Howard Archer, chief European and U.K. Economist at IHS Global Insight, also predicted 0.2 percent growth quarter on quarter "indicating that while the single currency area is sustaining very modest recovery, it is struggling to gain momentum."

He warned that domestic demand would remain constrained due to restrictive fiscal policies, high unemployment, low wage growth and poor credit conditions and was only likely to pick up "only slowly and to remain vulnerable to setbacks on any shocks…[and] we believe growth will be limited for some time to come," Archer concluded.

They are not alone in warning about economic headwinds in the region. A number of high-profile earnings reports from the region's corporate bellwethers warn that a slowdown in consumer demand and Europe's poor growth were weighing on earnings.

Europe's telco heavyweight Vodafone reported downward pressure on revenues from Europe amid a "challenging" European environment. The latest earnings from Europe's biggest mail and express delivery company, Deutsche Post, meanwhile, also missed expectations on Tuesday and the group gave a downbeat assessment of business going forward, citing fluctuations in foreign exchange interest rates.

The resilient strength of the euro has been caused by the U.S. Federal Reserve's reluctance to state when and if it will taper its multibillion-dollar stimulus program. The Fed's quantitative easing program has caused the dollar to weaken against currencies such as the euro, despite the region's troubles.

In the face of a strengthening euro (which weighs on exports) and concerns over its deflationary effect in the euro zone, the European Central Bank (ECB) cut interest rates by 25 basis points to 0.25 percent last week in an attempt to buoy up the economy and spending.

The bank's president, Mario Draghi, was criticized after the rate cut for stating that the euro zone still had the "best fundamentals in the world."

Following the rate cut, economists at London-based research house Capital Economics were among many vocal critics of the ECB's latest move, commenting that the central bank would have "to work harder to stop the strong currency from snuffing out the fragile recovery."

Lorenzo Bini Smaghi, a former executive board member of the ECB, told CNBC on Tuesday that the euro zone was "not doing well" and that the rate cut – which should not have come as a surprise given the deteriorating data, he said - "might not be sufficient. "

"The rate cut might not be sufficient because you need to bring inflation up, you need to stop the euro from appreciating so I think it's another step but if the Fed starts tapering then there is a rebalancing because the European economy is then in a worst situation and you need more accommodation," he said, adding that the euro area was far from where it needed to be.

(Read more: Eurozone unemployment stuck at record high)

"In the euro area as a whole, inflation is far away from [the ECB's target of] 2 percent, credit is slowing, the euro [is] appreciating and creating a problem for exports around Europe," he said

Reflecting such concerns, the European Commission cut its euro zone growth forecasts for 2014 last week. In its latest quarterly report, it forecast unemployment in the 17-country single currency bloc to remain around its current stubborn high of 12.2 percent until 2015.

(Read more: EU cuts eurozone growth forecasts for 2014)

In addition, the commission expected the euro zone's gross domestic product to shrink this year - by 0.4 percent -- before recovering to grow by 1.1 percent in 2014.

There was a lone voice of optimism, however, who believed that we should remember the journey the euro zone had been on during the economic crisis.

"While the rate of growth across the region remains sluggish in what continues to be a fragile-looking recovery, it should not be forgotten that the region's economy has shown a major turnaround so far this year," Chris Williamson, chief economist at Markit, told CNBC.

"Having been contracting steeply late last year, the euro zone has pulled out of its recession, and the business surveys suggest the picture will continue to brighten…developing into a more broad-based and self-sustaining recovery."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

Follow us on Twitter: @CNBCWorld

Contact Europe: Economy

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