BRUSSELS, Aug 29 (AFP) - Europe's fragile recovery is being held back by the surge in world oil prices, which is limiting growth and threatening to stop key eurozone economies from restoring order to their public finances, analysts say.
Historic crude prices reached this month, nudging 50 dollars a barrel, "are preventing an acceleration of growth in the eurozone, which would otherwise have happened," said Jose Luis Alzola of Citigroup.
"If oil stays at its current levels, eurozone growth will be eroded by a quarter or half a point," added Eric Chaney of Morgan Stanley. "It is certainly not a huge shock, but neither is the impact negligible," he added.
Lorenzo Codogno of Bank of America forecast that the oil crisis will limit growth in the 12-nation zone which shares Europe's single currency to 1.8 percent this year and 2.1 percent in 2005.
"Without it one could have hoped for growth of near 3 percent in 2005," he said.
According to a recent study by the International Energy Agency (IEA), the eurozone is more vulnerable to oil price spikes than other key world economies because of its bigger dependence on oil imports.
A sustained increase of 10 dollars in the price of a barrel of crude would slice 0.5 percent off of Europe's growth, as compared to only 0.3 percent for the United States, it said.
France and Germany are a little less dependent than the rest of the eurozone, the former because of its own power production including nuclear plants and Germany because of its use of coal, said Chaney.
Another factor easing the impact of the oil crisis is the strength of the euro against the dollar -- the currency in which crude is priced -- making it marginally less painful than the last price surge in 1999-2000.
European Central Bank (ECB) chief Jean-Claude Trichet noted last week that the situation remains a long way from the 1974 or early 1980s oil shocks, and expressed confidence in "a gradual recovery."
But clouds remain on the horizon: the oil crisis hit confidence among German and Belgian business bosses, according to a study last week.
"German growth is set to slow to an annualized 1.2-1.4 percent, compared to 1.8 percent in the first half of the year," said analyst Codogno, while the Bank of Italy forecast growth of no more than 1 percent this year.
France would like to see itself as the economic engine of Europe's recovery with a 3 percent growth rate, but the oil price rise "will weigh on domestic demand," said Jean-François Mercier of Citigroup.
And even with stronger-than-expected growth Paris will struggle to bring down its ballooning public deficit, set to remain at 3.8 percent of GDP this year and 3.1 percent next year -- above the 3 percent ceiling set by eurozone budget rules for the fourth straight year, said Mercier.
In Germany the deficit is forecast at 3.7 percent of GDP this year. "Unless there is a miracle it will still be above 3 percent next year," said Chaney.
France and Germany have been widely criticized for forcing the effective suspension of the eurozone's Stability and Growth Pact by claiming the global slowdown justified their reluctance to take drastic action to trim deficits.
The European Commission, the EU's executive tasked with policing the Pact, is due to reveal before October what it intends to do to reactivate the rules, to force them to come back into line.