BRUSSELS – Economic confidence across Europe fell sharply in May, the European Union's executive branch said Wednesday, in a further sign that the recent escalation in the region's debt crisis is being felt across the continent.
The European Commission said its economic sentiment indicator for the 17 countries that use the euro fell by 2.3 points in May to 90.6 — its lowest level in around two and a half years.
That's a bigger fall than expected and may be a sign that rising concerns over Greece's continued membership of the euro and Spain's ability to prop up its ailing banks is denting confidence in the economy.
A Greek exit from the euro or a worsening financial crisis in Spain could disrupt the eurozone's shaky banking system and hurt businesses ability to borrow and expand.
A resulting slump in the economy could make it harder for Europe to work its way out of its crisis over too much government debt in some countries. When output falls, debt burdens grow in relation to the overall size of the economy. The Commission predicts the eurozone economy will shrink by 0.3 percent this year.
The Commission said the survey decline was driven by falling confidence across all business sectors, especially industry and retail. However, consumer confidence held up.
It also found that sentiment across the 27-country EU, which includes non-euro members such as Britain and Poland, dived as well. The main indicator for the EU fell by 2.7 points to 90.5 points.
The Commission added that most member states, including all the bigger economies, saw declines during the month. The main indicator remains above its long-term average only in Germany.
"May's survey further underlines the enormity of the task facing eurozone policymakers if they are going to convert the recent talk of the need for growth into actual results," said Jonathan Loynes, chief European economist at Capital Economics.
Also Wednesday, the European Central Bank revealed that credit and money growth in the eurozone remains weak, a sign that the bank's €1 trillion ($1.25 trillion) emergency loans to commercial banks are not reaching consumers and businesses in the form of loans.
The annual growth in lending by banks to the private sector slipped to 0.3 percent in April from 0.6 percent in March. Meanwhile, the supply of money in the economy grew by only 2.5 percent in April, down from 3.2 percent in March.
Growth in the money supply and more borrowing and more credit would be signs of a recovery. But predictions are that output is set to shrink this year. That could complicate efforts to solve the continent's debt crisis.