Economic confidence is tumbling across Europe as the brakes are applied to growth, with gloom in Britain intensifying markedly, the European Commission reported yesterday.
The decline this month in the European Union "economic sentiment" index to its lowest level since October 2003 is the latest evidence of the global impact of the oil price shock.
It indicated "a considerable slowing of output growth in the first half of 2005", the Commission said. "The situation is not exactly rosy."
With figures this week showing that the US economy, a main market for European exports, grew in the first quarter at the weakest pace for two years, the Commission survey makes it even harder for the European Central Bank to raise rates in coming months.
"We're clearly in a slower growth environment - the question for everyone in Europe and the US is how long and deep the slowdown will be," said Jacques Cailloux, economist at JP Morgan.
The ECB is expected to hold rates at 2 per cent for the 23rd month running at its rate-setting meeting next week.
Wolfgang Clement, Germany's economic minister, appeared yesterday to back a call by Silvio Berlusconi, Italy's prime minister, for a cut in ECB rates - even though this has been ruled out by Jean-Claude Trichet, ECB president.
Mr Clement said monetary policy could respond to Germany's low inflation rate.
Euro-zone inflation in April remained at 2.1 per cent, official data showed yesterday, but German inflation was 1.4 per cent with "core" inflation, excluding food and energy prices, even lower.
The Commission said the strongest decreases in its economic sentiment index - covering industrial, retailing, the service sector, construction and consumer confidence - had been in the UK followed by France.
The UK, which is not part of the euro zone, also saw the largest decline in industrial confidence, while sentiment in the UK retail sector was off sharply.
Separate figures showed that French unemployment is rising to a five-year high of 10.2 per cent.
But economic gloom remains pervasive in Germany and Italy.
Revised data this week revealed that Germany was in a technical recession - two consecutive quarters of negative growth - in the second half of 2004.
Yesterday the governments in Germany and Italy revised downwards their 2005 growth forecasts - Germany's fell from 1.6 per cent to 1 per cent, Italy's from 2.1 per cent to 1.2 per cent.
The euro zone has been hit by the impact of a strong euro on exports. But Mr Clement was confident that German private consumer spending would accelerate - with 0.7 per cent growth in 2006, after 0.5 per cent in 2005 - with the help of next year's football World Cup, which is to be hosted by Germany.
