BERLIN Aug 4 Sentiment in the euro zone slumped unexpectedly in August, as the European Union's economic sanctions on Russia weighed on growth expectations, particularly in Europe's largest economy Germany, according to the Sentix index survey.
The Sentix research group's index tracking morale among investors in the euro zone slumped to 2.7 in August, its lowest level in a year, from 10.1 in July. The consensus forecast in a Reuters poll had been for the sentiment index to ease slightly to 9.0.
"After last month's recovery the euro zone Sentix index has suffered a painful set-back," Sentix said in a statement, attributing it to sharply reduced growth expectations due to the sanctions.
"As this slump derives from an event which is subject to politics and power play, the central banks, particularly the European Central Bank, will have difficulty in trying to counter this," Sentix added.
A sub-index of expectations for the currency-zone's economy in the next half-year collapsed to 5.0 for August from 18.3 in July and another sub-index for current conditions fell to 0.5 from 2.3.
An index tracking Germany fell to 17.9 points from 29.0.
The European Union and the United States announced further sanctions against Russia last week that targeted its energy, banking and defence sectors in the strongest international action yet over Moscow's support for rebels in eastern Ukraine.
German economic growth will shrink towards zero in the second quarter due to the Ukraine crisis and the new economic sanctions imposed on Russia, from 0.8 percent in the first quarter, the head of Germany's Ifo institute said on Saturday.
(Reporting by Alexandra Hudson; Editing by Catherine Evans)