Economic mood deteriorates

Confidence in the business community and among consumers in the euro area fell sharply in April, the European Commission's closely watched Economic Sentiment Indicator (ESI) showed on Thursday.

The overall index dropped to 92.8 percent, down from 94.5 percent in March of this year. The indicator thus dipped to levels last seen in the 17-member eurozone in December 2011.

"The decline in the euro area was mainly driven by weakening confidence in the industry and service sectors," the Commission said, pointing out that only retailers saw an improvement in confidence.

The release of the April survey came on the back of a series of national data showing that a good proportion of the members of the currency bloc was sliding into recession, with governments stepping up their efforts to consolidate budgets.

"With more austerity in the pipeline and the debt crisis still unresolved, any significant pick-up in economic confidence in the remainder of this year may fail to occur," ING Bank economist Martin van Vliet told dpa news agency.

Eurozone's problem children

The sharpest drop in business and consumer confidence was evident in Italy and Spain. The two nations - together with Greece - are causing the biggest headache for investors who are concerned that they may not be able to pay their debts as their economies contract. Even in Germany, which looks certain to avoid recession this year with moderate growth of 0.7 percent predicted by the government, the ESI barometer declined by one point.

The European Commission's April survey added to evidence that the more than one trillion euros ($1,330 billion) in cash injections from the European Central Bank (ECB) were losing their desired impact on markets.

In a report released on Thursday, the ECB, however, insisted that its provision of ultra-cheap three-year loans to bank was a necessary move.

"Especially after the allotment of the second ECB refinancing operation, the indicators of financial integration have shown signs of improvement," the central bank maintained in a statement.

hg/mll (dpa, AFP)