Global Confidence Weakens for Third Month on Slowdown (Update1)

Feb. 13 (Bloomberg) -- Confidence in the global economy fell for a third month in February as the slowdown in the U.S. spread to Europe and Japan, a survey of Bloomberg users on five continents showed.

The Bloomberg Professional Global Confidence Index fell to 14.3 from 21.0 in January. Users in Asia were the most pessimistic about the global economy, with the index falling to 12.6 from 15.0. A reading below 50 indicates negative sentiment.

Global stocks have lost more than $6 trillion this year as credit dried up for some borrowers and the U.S. expansion stalled. After insisting Europe would weather the slowdown, European Central Bank President Jean-Claude Trichet said last week uncertainty was ``unusually high,'' while Bank of Japan Governor Toshihiko Fukui may see his interest-rate increases reversed by his successor within months.

``First credit markets collapsed and that led to a banking crisis which has affected the real economies of all regions,'' said Jose Carlos Diez, chief economist at Intermoney SA in Madrid and a participant in the survey. ``We have yet to know when the slowdown of the global economy will end and I don't expect a recovery before the summer of 2009.''

The Bloomberg Professional Confidence Survey collated the responses of 6,878 Bloomberg users from Auckland to New York on the economic health of their region and the world. The survey was conducted from Feb. 4 to Feb. 8. The investors, traders and analysts were also asked about the outlook for their currencies, bonds, stocks and rates in the next 6 months. Participants answered questions in cities including Hong Kong, Zurich and London.

Pessimistic Americans

North American users were the most pessimistic about economic growth in their region, with the index falling to 19.3 from 19.6. Home sales in the world's largest economy fell at the fastest pace since at least 1963. While users in Asia were the least pessimistic, the index suffered the sharpest deterioration, falling to 43.5 from 51.1.

``We're already getting signs that things are deteriorating, but there's fear that things are going to get worse,'' said Samra Al-Harthy, an economist at Standard Chartered Plc in London.

In Europe, sentiment toward the world economy dropped to 12.9 from 17.3. Participants there also soured on their own economy, pushing the regional index down to 26.2 from 27.3.

IMF Lowers Forecast

The International Monetary Fund in January lowered its forecast for global economic growth this year to 4.1 percent, the lowest since 2003, from 4.4 percent predicted in October. The IMF said last year's increase in credit costs resulting from defaults on mortgages aimed at borrowers with poor credit histories is hurting the rest of the economy.

Financial institutions around the world face $400 billion of write-offs as a consequence of the U.S. subprime mortgage slump, according to Group of Seven estimates, German Finance Minister Peer Steinbrueck said on Feb. 9.

UBS AG, Europe's largest bank by assets, last month posted the biggest loss ever by a bank after raising fourth-quarter writedowns to $14 billion. The world's biggest financial companies have booked more than $145 billion of writedowns and losses since the beginning of 2007, partly because of the declining value of securities backed by assets including U.S. subprime mortgages.

``The epicenter of this slowdown is clearly the U.S.,'' said Kathleen Stephansen, chief global economist at Credit Suisse in New York. Still, ``the credit crunch will be exported to Japan and, particularly, Europe.''

Lower Interest Rates

U.S. users maintained their expectations for further interest-rate reductions in the next six months even after the Federal Reserve pared borrowing costs twice in January to avert a recession. The gauge of interest-rate expectations, reflecting the view of 2,708 Bloomberg users, fell to 11.8 from 12.8.

European expectations of interest-rate cuts by the ECB surged, with the index for Germany dropping to 20.6 after 43.2. The French gauge fell to 24.1 from 32.6.

Finance ministers and central bankers from the Group of Seven major industrialized nations said after a weekend meeting in Tokyo that ``downside risks persist,'' including the U.S. housing slump and tighter credit conditions. They pledged ``appropriate actions, individually and collectively.''

German users switched to expecting a decline in long-term borrowing costs, suggesting increased confidence that the ECB can lower interest rates without letting inflation accelerate. The index fell to 44.0 from 56.8. The U.S. gauge for long-term bond yields rose to 44.7 from 37.8.

``The rest of the world can grow at a fairly healthy rate provided the U.S. slowdown is short and shallow,'' Julian Jessop, chief international economist at Capital Economic Ltd. in London, said.

Respondents in every economy except Hong Kong expect to see further stock market declines. U.K. users were the most negative with the index reading 23.2 after 24.9. The U.S. gauge rose to 26.9 from 23.5. The S&P 500, the benchmark U.S. index, declined 8.1 percent this year to 1348.86 yesterday.

The next survey will be conducted March 3 to March 7.

To contact the reporter on this story: Paul Tobin in Madrid ptobin@bloomberg.netBen Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: Riad Hamade at rhamade@bloomberg.net