An indicator of the economic climate in the euro area deteriorated further in the fourth quarter and hit the lowest level in more than three years, a survey by the Ifo Institute showed Thursday, with large public budget deficits cited as the main reason for the continuing downturn.

The economic climate indicator dropped to 81.7 in the fourth quarter from 88.9 in the third quarter as respondents' assessment of both the current situation and future expectations turned more negative. The latest index reading was the lowest since the third quarter of 2009. The six-month outlook component showed a markedly steeper decline.

The current situations' sub-index fell to 97.9 in the final quarter of 2012 from 103.5 in the preceding quarter, while the expectations component dropped to 72.1 from 80.3.

While public budget deficits in euro area economies were cited as the main reason for the region's difficult economic situation, a lack of demand and high unemployment were also indicated as serious economic problems.

Experts who participated in the survey do not expect the current economic situation to improve on balance in the near term, and were generally of the view that "there are no signs of an economic recovery on the horizon yet."

The survey showed that inflation estimates in the Eurozone increased to 2.4 percent in 2012 from 2.2 percent, underscoring participants' increased pessimism regarding the future climate.

Experts also expect short-term interest rates to remain largely unchanged over the next six months, while long-term interest rates look set to rise only slightly.

RTTNews