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The outlook for Europe's economy darkened on 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.
The Commission sentiment survey showed euro zone sentiment in industry declined to -16.1 in September from -15.4 in August, and to -12 in the services sector from -10.8.
"The country breakdown signals a sharper deterioration in the core than in the peripheries, the latter, however, remained at extremely low levels," said Evelyn Herrmann, European economist at BNP Paribas.
Germany, long the main engine of the euro zone economy, was suffering too.
"German economic sentiment posted another deterioration to an index level of 94.7 from 95.8, which, again, was mostly driven by the manufacturing sector, but also by the services sector," she said.
German unemployment rose for a sixth month running in September, suggesting domestic demand might not be able to compensate for weakening exports amid the euro zone crisis and power growth in the bloc's number one economy.
Joblessness remains near to its lowest level since German reunification more than two decades ago, and the unemployment rate held steady at 6.8 percent, contrasting starkly with the sickly labor market in many peers, including France and Spain.
But it rose by 9,000 in September, as the global slowdown and the euro zone's three-year-old crisis weigh on exports and prompt companies to hold back on investment, and economists said they saw it rising more in the months ahead.
The Commission data showed sentiment among euro zone consumers - the buying public - fell to -25.9 from -24.6 and to -18.6 from -17.2 in retail trade. Construction was the only sector where confidence improved marginally, to -31.9 from -33.1 in August.
The data also showed that inflation expectations rose among producers, the services sector and households alike, potentially complicating any possible decision by the European Central Bank to cut interest rates and help the economy.
But ING's Brzeski said the results of the Commission survey on inflation expectations were more closely correlated to ongoing price developments, with opinions strongly influenced by the spike in fuel prices.
"It does not make life easier for the ECB, but, under (President Mario) Draghi, the ECB has become more growth oriented with inflation more a derivative of growth, so with this drop in growth, the window for another rate cut this year is still open," he added.