The outlook for Europe's economy darkened on Thursday with euro zone business confidence falling to a three-year low and a range of economic indicators across the continent pointing towards recession. The euro zone economy stagnated in the first three months of the year and contracted 0.2% in the April-June period. Economists expect another contraction in the third quarter. Two quarters of contraction is considered to mark recession. 

Shrinking lending and rising unemployment in Germany, until now a mainstay for growth in the euro zone, added to the gloom, with economists saying there was now no hope of growth for the region in the third quarter of the year.

"It is bad. Everything is down, we are heading towards another quarterly economic contraction," said Carsten Brzeski, economist at ING bank in Brussels.

The European Commission's monthly economic sentiment survey showed the index for the 17 countries sharing the euro falling to 85 points this month from 86.1 in August.

"It's yet another blow to euro zone growth hopes," said Howard Archer, economist at IHS Global Insight.

The European Commission's business climate indicator for the euro area, which points to the phase of the economic cycle, fell to -1.34 points in September from -1.18 in August, against market expectations of -1.19 points. The September reading was the lowest since October 2009.