The gauge of business and consumer confidence in the 17-member Euro area fell to 90.6 in May 2012 from 92.9 in April 2012, the European Commission said in a report on Wednesday.
Europe's economic slump may deepen with Greece tipped to exit the euro as a change in political leadership in the nation may see the debt saddled economy reject the terms of the bailout accord with international lenders. Greece's exit from the euro may cause severe financial turmoil across the region.
Moreover, surging Spanish borrowing costs are rasing concerns that Euro area's fourth largest economy may need an international bailout as the government struggles to recapitalize the nation's struggling banks.
Manufacturing activity in the Euro area contracted at the fastest pace in 35 months in May 2012 while services output hit a seven -month low, a sign that the debt plagued economy may see a deeper than expected recession in 2012.
Companies are cutting back output, squeezing capital and investment spending, and shedding jobs amid a worsening economic outlook.
The lingering debt crises in Europe and painful austerity measures are squeezing spending in the region. Moreover, soaring unemployment is also curbing consumer spending.
Severe austerity measures including tax hikes and salary cuts undertaken by most Euro area economies including Spain, Italy and Greece are dampening consumer confidence and household spending in the region.
The latest data underscores the gloomy outlook for the Euro area economy.