For a while, the euro-area economy seemed to make light of global gloom. Rising food and gasoline prices crimped consumer spending, but firms in the euro area were contentedly working through order books fattened by resilient export demand. Perky business confidence, especially in Germany, helped drive the euro up, briefly over $1.60 in April.

New figures show that the first quarter was surprisingly strong. GDP rose at an annual rate of 2.8 percent, far stronger than in either America or Britain. Spain's growth was only 1.2 percent, making this its weakest quarter for over a decade. But Germany's economy grew by 6 percent, as construction firms took advantage of warm weather. France managed a solid 2.4 percent.

Yet this could be the high-water mark. European businesses have suddenly become a lot glummer. A bellwether survey of German firms by Ifo, in Munich, showed confidence dropping in April to its lowest in more than two years. French business confidence, which had briefly flowered, wilted as well; Italian firms have sunk further into gloom.

That firms are feeling less chipper is not so surprising. Much of industry's earlier ebullience was founded on export sales, which made the euro area vulnerable to a global downturn. The malign effects of the credit crunch are now clearly visible in the euro area's biggest foreign markets, Britain and America. Even Germany's export engine is spluttering: Shipments fell in February and again in March. Firms are now complaining more vociferously that the euro's strength is hurting demand.

Equally worrying is the fragile state of consumer spending, a drag on the economy ever since the credit crunch began last summer. Retail sales fell again in March, the fourth drop in the past six months, leaving them 1.6 percent lower than a year earlier.

Slow retail trade partly reflects a lack of spending power. Household disposable incomes in the euro area grew by 3.8 percent at the end of last year, but much of this modest gain has been eaten up by rising fuel and food prices that have pushed inflation well above 3 percent. Though euro-area unemployment is stable, nervous firms are creating fewer jobs. In Spain and Ireland, worst-hit by the credit crunch, joblessness is rising.

The rising raw-material prices are a headache for policymakers, as well as a tax on consumers. Unless the price of crude falls back, euro-area inflation is likely to stay above 3 percent, well over the European Central Bank's (ECB) target range of below 2 percent. Until inflation falls decisively, the ECB will not cut interest rates.

Nor is inflation the only worry. Credit conditions are tightening. Bank loans to households are growing more slowly than a year ago. The credit crunch has had a less dramatic impact across the euro area than in either Britain or America. Bank lending to firms is still buoyant, though this partly reflects substitution for wilting capital-market finance. But Spain is suffering.

"The Spanish economy is the clearest victim of the credit crunch, just as it was the main beneficiary of the credit boom," said Michael Hume at Lehman Brothers. Spain is weighty enough -- and its slowdown sharp enough -- to do much harm to the euro-area economy.

There is one small reprieve: The fresh signs of economic weakness have curbed the markets' enthusiasm for the euro, which has now dropped back to $1.55. Yet few believe that the dollar will swiftly regain further ground.

Whatever the frailties of Europe's economies, America is in even worse shape. A high and rising oil price, although harmful to Europe's prospects, hurts America's more. The euro area uses less oil per head, exports more to cash-rich oil-producers and has a healthier trade balance than America -- all factors that favor its currency over the dollar.