Morale at German firms has fallen

The key Ifo poll of German executives unexpectedly fell in February, while a survey of Italian consumers recorded its lowest ever reading.

Economists cited the strength of the euro and accounting scandals as some of the reasons behind the mood change.

There was better news from France where retail spending rose by 2% in January, four times the normal monthly average.

Currency woes

However, French shoppers were lured to the cash tills by discounts and there are mounting concerns that both corporate and consumer spending may now tail off in coming months.

That would dent economic growth in Europe where companies are already seeing foreign sales eroded by the record strength of the euro against the US dollar.

Some of the worst hit firms have been in Germany and, according to the Ifo survey of more than 7,000 executives, the effects are starting to hit morale.

The latest figures of future expectations dropped to 96.4 from a three-year high of 97.5 in January, Ifo said, adding that the data was a "small warning signal".

In Italy, the alarm bells also were being rung.

According to research company ISAE, the scandal surrounding dairy company Parmalat has soured the joy of shopping for many Italians.

Its consumer confidence index fell to 99 in February from 100.6 in January.

Luigi Speranza, an economist at BNP Paribas, called the data "bad news" and went on to say that "future consumer demand is at risk".