08/30/2011 05:22 EDT | Updated 10/30/2011 05:12 EDT

Eurozone sentiment indicator falls below average in another downbeat sign for growth

FRANKFURT - Business and consumer optimism in the 17 countries that use the euro fell in August, reinforcing fears that the region's economy will slow in the months ahead as political leaders struggle to contain a crisis over government debt.

The European Union's economic sentiment index issued Tuesday fell 4.7 points to 98.3, below its long-term average of 100.

Germany, the eurozone's largest economy, reported the largest drop, and it alone remains above the 1990-2011 average.

The reasons for the decline included gloomier views of the future among retailers, and among consumers afraid of losing their jobs, EU economic officials said in a statement accompanying the index numbers. Industrial managers are concerned about export orders and inventories that may be overstocked for future demand.

Economists and government officials say the economy is starting to be affected by financial market ups and downs caused by fears that some governments may not be able to repay their debts. Stock and bond markets fell sharply in early August amid fears that efforts by eurozone government leaders were not enough to contain the crisis.

European Monetary Affairs Commissioner Olli Rehn told EU lawmakers on Monday that the market volatility was now affecting the real economy.

The European Central Bank has fought the market turmoil for three weeks by buying Italian and Spanish government bonds to reduce financial pressure on those countries, but governments are still struggling to reduce debt and find a more permanent solution. Leaders agreed July 21 to give new powers to the eurozone's €440 billion ($637 billion) bailout fund, enabling it to take over the bond purchases from the ECB and loan money quickly to troubled governments, but national parliaments have not yet ratified those changes.

The EU forecasts 1.6 per cent growth this year for the eurozone, but those predictions are due to be lowered on Sept. 15.