"Gross domestic product grew 0.2% in the euro zone as a whole during the first quarter compared with the final three months of 2013, the European Union's statistics agency Eurostat said, well short of the 0.4% quarterly gain expected by economists.
Overall growth, which was driven by Germany, masked sharp differences among euro-area nations. Italy and Portugal both saw their economies shrink slightly.
Stock indexes in Milan and Lisbon led markets lower, losing 3.6% and 2.8% respectively. The pan-European Stoxx Europe 600 closed down 1.0%, having traded at a fresh six-year high early in the session.
"The euro-zone growth number was shocking. We had a bit of complacency in the market for a while when it looked like things were getting back on the rails," said Patrick McCullagh, head of fixed income credit research at Schroders.
Investors have already been turning cautious on previously highflying markets like Italy in recent weeks. That process quickened on Thursday, according to Nick Nelson, head of European equity strategy at UBS.
"[The data] is giving a little bit more fuel to the rotation out of the last year's winners," he said.
The equity selloff accelerated in the afternoon amid a slump in euro-zone debt markets.
Traders said gains for Greek opposition parties in polls ahead of European parliamentary elections later this month soured the mood.
Greek 10-year yields climbed more than half a percentage point to 6.72%, their highest in two months. Yields rise as prices fall. Ten-year yields in Italy, Spain and Portugal all climbed more than 0.2 percentage point.
German government debt, seen as a safe harbor by investors, surged.
Gary Jenkins, credit strategist at LNG Capital said that investors are particularly sensitive to the risk of a break-up of the Greek coalition, which could lead to a greater risk of debt restructuring or even default.
"Of course that might not happen, but the market is taking a 'sell first and ask questions later' approach, when it comes to Greece," he said.
The Greek finance ministry denied Wednesday that it was imposing a retroactive tax on capital gains on Greek government bonds held by investors based outside the country. It was attempting to contain what it called "completely untrue" reports that it had announced such plans in a circular, which traders said had added fuel to the selloff.
The move was part of a broader retreat into safe-harbor assets".
