FRANKFURT (AFP) - Data showing a shock decline in investor confidence in Germany and a drop in French industrial output appeared to put a question mark over the prospects for economic recovery in the 12-country eurozone.
While European policymakers remain resolutely upbeat on the growth outlook for the single currency area, real economic data from the eurozone's two biggest economies are beginning to paint a different picture -- that runaway oil prices are crimping growth and there are an increasing number of signs that the global recovery is running out of steam as well.
In Germany on Tuesday, the ZEW economic research institute's economic expectations index, based on a poll of 297 analysts and institutional investors, tumbled by 7.1 points to plus 31.3 points in October, its lowest level in 16 months.
And in Paris, the INSEE statistics institute calculated that French industrial output fell by a bigger-than-expected 1.9 percent in August.
The numbers came hot on the heals of disappointing German output and export data last week which also suggested the recovery of the eurozone's biggest economy could be running out of steam and third-quarter growth was likely to come out weaker than initially thought.
"The reason for the increased pessimism is the further rise in oil prices and expectations for a slowdown in global growth momentum," ZEW President Wolfgang Franz said.
In London, oil prices surged above 54 dollars for the first time on Tuesday.
At its current level, the ZEW index is below its historical average of 34.7 points and is now at its lowest level since June 2003, the think-tank said.
The ZEW indicator represents the balance between positive and negative expectations for the economy over the next six months.
If the majority of analysts and institutional investors polled believe the economy will improve, the index shows a plus. If most are expecting a deterioriation, the index shows a minus.
ZEW chief Franz said the latest reading, while still safely in positive territory, indicated that "analysts are expecting a slight slowdown in growth until next April."
Recent disappointing manufacturing orders and export data "might already be seen as a sign of an easing of foreign demand for German-made goods," Franz said. "And unfortunately, there are still no impulses from domestic demand that could help offset this."
Economists were disappointed by the ZEW's October reading -- consensus forecasts had predicted a much small decline in the index this month.
"It adds to fears that the German recovery is faltering," said an economist at Capital Economics, Julien Seetharamdoo.
The ZEW data were likely to presage another fall in Germany's other key confidence barometer, the widely watched Ifo business climate index later this month, the economist predicted.
"It provides further evidence of a slowdown in growth and taken together with recent disappointing industrial output data for both Germany and France, is adds pressure on the European Central Bank to keep its key interest rates on hold for a long time to come," Seetharamdoo said.
Last week, the ECB held its central "refi" refinancing rate unchanged at 2.0 percent for the 16th month in a row and signalled growing concern about the negative effects on economic recovery of the runaway price of oil, even if it resolutely insisted that conditions for growth remained intact.
Lehman Brothers economist Sandra Petcov said the ZEW data showed that "surging oil prices are indeed denting analysts' expectations for the German economy".
For Bank of America economist Holger Schmieding, the ZEW numbers "contradict the ECB's growth optimism."
With the ZEW index still in positive territory, "the upswing is not over," Schmieding said. "However, there is a loss of momentum which the ECB was not expecting. And the uncertainties arising from higher oil prices are likely to persuade the ECB to keep its rates on hold throughout the first half of 2005."