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Confidence in eurozone slips to lowest level since October 2009

ECONOMIC confidence in the eurozone declined more than economists forecast in May to the lowest in two-and-a-half years as the inconclusive Greek elections stoked fears of a euro breakup and Spain struggled to shore up its banks.

An index of executive and consumer sentiment in the 17-nation euro area fell to 90.6 from a revised 92.9 in April, the European Commission in Brussels said yesterday.

That's the lowest since October 2009 and below the 91.9 forecast by economists.

Europe's economic slump shows signs of deepening after Greece failed to form a government following May 6 elections while Spain struggles to clean up its banks amid recession and unemployment of more than 20pc.

Citigroup economists forecast Greece could leave the euro area by next year. Eurozone manufacturing and services output contracted more than economists estimated in May and German business sentiment had the steepest decline since August.

Doom loop

"All second-quarter sentiment indicators seem to signal a fall back into recession territory," said Peter Vanden Houte, an economist at ING Group in Brussels. "European leaders will have the difficult task to find a way out of this doom loop."

A gauge of sentiment among European manufacturers fell to minus 11.3 from minus 9 in April. That's the lowest since February 2010.

An indicator of services confidence dropped to minus 4.9 from minus 2.4, while a gauge of consumer sentiment rose to minus 19.3 from minus 19.9. Sentiment in the construction industry also declined this month.

The European Central Bank said yesterday that loans to households and companies in the eurozone grew at the slowest pace in years despite the ECB's decision to flood markets with more than €1 trillion in three-year loans at its benchmark interest rate, which is at a record low of 1pc. (Bloomberg)

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