June 28, 2012 / 9:49 AM / in 6 years

Euro zone crisis saps confidence in June as leaders meet

BRUSSELS (Reuters) - Euro zone economic sentiment fell by more than expected in June, as managers of businesses and in factories across the currency area saw little reason for cheer as the region’s economy stalls, even in wealthier, northern nations.

The European Commission said on Thursday its economic sentiment index slipped by 0.6 points in the 17-nation euro zone to 89.9, compared to the 89.5 point average forecast in a Reuters poll. It was the index’s third consecutive monthly decline and the lowest level since the end of 2009.

As EU leaders meet for a summit in Brussels to try to find ways to resolve the debt crisis that has gradually spread across the continent since it began in Greece in January 2010, the mood continued to worsen at businesses.

“The sustained fiscal austerity and ‘muddling through’ approach to the crisis is clearly taking its toll on economic confidence across the region,” said ING economist Martin van Vliet in a note to clients. “Today’s figures are a further wake up call to euro zone leaders that... the crisis also needs a short term solution addressing the lack of growth.”

Factory managers said they were pessimistic about future orders of goods, from televisions to cars, while production levels and even current export order books - so far kept alive by U.S. and Chinese demand - had deteriorated.

Banking and finance, at the centre of the crisis after Spain requested a rescue for its banks this month, was also depressed, with confidence falling by the greatest margin of all industries and continuing a downward trend since early last year.

With one in 10 euro zone workers out of a job, households in southern Europe in particular are struggling and confidence among consumers fell slightly in June, with the Commission citing “increased unemployment fears” as a major factor.

Europe’s debt crisis has sapped demand from its economies and while the euro zone narrowly escaped a recession in the first three months of 2012, many economists expect the bloc’s economy to remain stagnant for much of this year, with a weak recovery possible in 2013.

But in a sign that the impact of the crisis is being felt across the bloc and not just in the indebted Mediterranean, economic sentiment fell in Germany, Europe’s biggest economy, as well as in the Netherlands, Belgium and Austria.

“The survey supports other evidence that the downturn is now really hitting the core economies,” said Jennifer McKeown, senior European economist at Capital Economics in London.

The Commission’s business climate indicator for the euro area also fell in June, by 0.15 points to -0.94, worse than the Reuters poll average forecast of -0.89 and its lowest level since December 2009.

Reporting by Robin Emmott; editing by Rex Merrifield

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