Eurozone Business Morale Sinks

BRUSSELS -- Economic sentiment in the euro zone skidded much more than expected in July to its lowest in more than five years, data showed on Wednesday, pointing to a stagnant economy and boosting expectations that interest rates will be kept on hold this year.

The European Commission said its economic sentiment indicator fell to 89.5 points, its lowest since March 2003, from a downwardly revised 94.8 in June.

"At current levels, it is consistent with roughly stagnant GDP growth," said Nick Kounis, chief economist at Fortis.

Aurelio Maccario, chief euro zone economist at UniCredit, said the euro zone economy was heading toward a stagnation phase bound to last at best a few months.

"Things should slightly improve only at the turn of the year," he said.

In reaction, the euro slipped briefly from a session high against the dollar and bond futures rose.

The figures were the latest in a string of weak data, which economists say may point to a contraction in the currency area in the second quarter of 2008 after 0.7 percent growth in the previous three months.

The economy is burdened by a strong euro, soaring prices of food and energy, tight credit conditions and an increasingly visible slowdown in other major industrial countries.

In a sign that the real economy is affected, German engineering group Siemens said it expected to see weaker order growth in coming quarters.