BRUSSELS – The outlook for Europe's economy darkened 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. “Consequently, it appears that the euro zone has suffered further, appreciable GDP contraction in the third quarter. This would put the euro zone officially into recession.” The European Commission's business climate indicator for the euro area, which points to the phase of the economic cycle, fell to -1.34 points in September from -1.18 in August, against market expectations of -1.19 points. The September reading was the lowest since October 2009. More evidence of economic gloom in the third quarter came from European Central Bank data on lending to households and companies, which showed credit to the economy fell more than expected in August. Loans to the private sector fell 0.6 percent from the same month a year ago, data released by the European Central Bank showed on Thursday, coming in below the expectations of economists polled by Reuters for no change. The flow of loans to non-financial firms fell 10 billion euros after rising by 8 billion euros in July. The monthly flow of loans to households showed a gain of 7 billion euros after a drop of 1 billion euros in the previous month. – Reuters
