Euro zone economic outlook darkens with fall in confidence

Thu Sep 27, 2012 7:22am EDT
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By Jan Strupczewski

BRUSSELS (Reuters) - The outlook for Europe's economy darkened on Thursday with euro zone business confidence falling to a three-year low and a range of economic indicators across the continent pointing towards recession.

Shrinking lending and rising unemployment in Germany, until now a mainstay for growth in the euro zone, added to the gloom, with economists saying there was now no hope of growth for the region in the third quarter of the year.

"It is bad. Everything is down, we are heading towards another quarterly economic contraction," said Carsten Brzeski, economist at ING bank in Brussels.

The euro zone economy stagnated in the first three months of the year and contracted 0.2 percent in the April-June period. Economists expect another contraction in the third quarter.

Two consecutive quarters of contraction is considered to mark recession.

"While the (European Central Bank's) promise of bond buying and the German court ruling (endorsing the euro zone's permanent bailout fund) did a lot to calm financial markets, there is still the big issue of non-existent growth," Brzeski said.

The European Commission's monthly economic sentiment survey showed the index for the 17 countries sharing the euro falling to 85 points this month from 86.1 in August. Economists polled by Reuters had expected no change.

"It's yet another blow to euro zone growth hopes, especially as it follows on from the purchasing managers' surveys indicating that services and manufacturing output contracted at the fastest rate for 39 months in September," said Howard Archer, economist at IHS Global Insight.   Continued...

A woman buys bread on a supermarket in Lisbon August 30, 2011. REUTERS/Jose Manuel Ribeiro