The forecast for Germany was ratcheted up to 3.4 percent for 2010, up from the 1.2 percent predicted in the spring The commission also forecast better results for France, Italy and the Netherlands. Spain too will see a smaller contraction than orignially envisaged.

"We now have solid ground under our feet. We have started scoring again, but there is no reason to shout for victory. We must remain alert and vigilant," EU Economic and monetary affairs commissioner Olli Rehn.

"The recovery remains fragile however," noted the assessment based on figures from the seven largest EU economies, produced by the European Commission, "and with uncertainty high and developments across member states uneven."

"Uncertainties remain," said the commissioner, arguing that the best response to such a situation was "fiscal consolidation" - jargon for balancing budgets.

He wants to see additional cuts in Portugal, structural reforms in France - underlining his desire to see the country reform its pension system over the objections that have produced mass protests there, and further slashing of spending in Ireland.

Germany and Poland have performed the strongest, suggesting a two-speed Europe, when one compares their results to southern Europe.

Spain meanwhile, after just two quarters of growth for the first half of this year - the first positive results since December 2007, is set to head back into negative territory of -0.3 percent this autumn.

And Greece, which was not included as part of the interim forecast, nevertheless saw a collapse of 1.5 percent in the year's second quarter.

The assessment paints a picture of an EU economy that is "expected to ease in the second half of 2010," largely as a result of the softening of the rest of the global economy, while domestic demand, outside Germany, has failed to take off.

Even Germany will see a much weaker autumn and winter, with the forecast predicting 0.6 percent GDP growth in the third quarter and 0.4 percent in the fourth, down from the 2.2 percent growth seen in the second quarter.

The US growth rate at the end of August was cut from a projected 2.4 percent to 1.6 percent as some economists begin to fear deflation crossing the Pacific from Japan.

Elsewhere on Monday, the Organisation for Economic Cooperation and Development on Monday said that growth in the US, Canada, China, India, Japan and Brazil may slow down in the coming months.

Inflation in the EU also remains subdued, as a result of the slack in the economy and depressed wage growth. Such inflation as exists has largely been a result of exchange-rate developments and sharp increases in food prices.

The interim report was optimistic that "over the last few months, financial markets have partly recovered from the sovereign debt crisis" that hit the bloc in the spring.

These lines however appear to have been written before the last fortnight's jitters set in. Portugal, Ireland and Greece are all seeing record high interest rates on government bonds, on 5.7 percent, 5.8 percent and 11.6 percent respectively.