Consumer Confidence in Euro Region Declines More Than Economists Forecast
European Economic Confidence Worsened in March
Guenter Schiffmann/Bloomberg
Growth in Europe’s services and manufacturing industries slowed more than economists forecast in March and German business confidence declined this month.
Growth in Europe’s services and manufacturing industries slowed more than economists forecast in March and German business confidence declined this month. Photographer: Guenter Schiffmann/Bloomberg
European confidence in the economic outlook worsened in March, after surging energy costs and Japan’s earthquake clouded global growth prospects.
An index of executive and consumer sentiment in the 17- nation euro region slipped to 107.3 from a revised 107.9 in February, which was the highest since August 2007, the European Commission in Brussels said today. It had previously reported a February reading of 107.8. Economists forecast a drop to 107.5, the median of 25 estimates in a Bloomberg News survey showed.
Crude oil prices have jumped 15 percent this year, leaving companies and households with less money to spend as the European Central Bank prepares to raise borrowing costs. While the German economy, Europe’s largest, has powered the region’s expansion, investor confidence dropped in March, reflecting concern about the global economic impact of the earthquake and tsunami in Japan and Middle East unrest.
“There is some concern that economic activity could be hit by high oil prices and events in the Middle East, Africa and Japan,” said Howard Archer, chief European economist at IHS Global Insight in London. “Consumer confidence was hit particularly hard in March by increased concerns over inflation and the economic outlook.”
The euro declined against the dollar after the report, trading at $1.4085 at 11:33 a.m. in Frankfurt, down 0.2 percent on the day.
Faltering Recovery
A gauge of sentiment among euro-region manufacturers held at 6.6 in March from the previous month, today’s report showed. Services confidence slipped to 10.8 from 11.2 and an index of consumer confidence dropped to minus 10.6 from minus 10. Sentiment among builders fell to minus 25 from minus 24.2.
The region’s recovery is already showing some signs of faltering. Growth in Europe’s services and manufacturing industries slowed more than economists forecast in March and German business confidence declined this month. Euro-region inflation quickened to 2.4 percent in February, the fastest in more than two years and above the ECB’s 2 percent limit.
Adding to signs of increasing cost pressures, an indicator measuring households’ assessment of price developments over the coming 12 months rose to 30.8 from 25.7 in February, the commission said. A gauge of consumers’ willingness to spend on big-ticket items slipped to minus 24.1 from minus 23.7 and households also grew less confident in their ability to save money. A gauge of euro-region manufacturers’ selling-price expectations rose to 23.8 from 22.4.
ECB ‘Resolve’
Schaeffler Group, the world’s second-largest maker of rolling bearings, said yesterday that soaring energy costs may hurt profitability in 2011. Benetton Group SpA (BEN), Italy’s largest clothing company, plans to “act vigorously in order to counter the increase in raw-material costs,” Biagio Chiarolanza, co- chief executive officer, said in a statement on March 15.
European companies have relied on faster-growing markets to bolster sales as governments from Ireland to Spain toughened budget cuts, eroding consumer demand. Daimler AG (DAI) and German rival Bayerische Motoren Werke AG (BMW) have said they plan to boost their workforces partly to meet surging Chinese car orders.
An indicator of manufacturers’ export order books slipped to minus 0.5 from minus 0.3 in February and a gauge of production expectations fell to 17.6 from 19.7. Companies grew more confident in their ability to hire workers, with a gauge of employment expectations rising to 8.4 from 6.5.
The ECB has signaled that it may raise its main lending rate from a record low of 1 percent at the April 7 meeting. ECB Executive Board member Jose Manuel Gonzalez-Paramo said on March 25 that risks to price stability are “very much on the upside” and that policy makers remain “strongly vigilant.”
The survey “revealed increased signs of inflation pressure,” said Martin van Vliet, an economist at ING Group in Amsterdam. “This will undoubtedly strengthen the ECB’s resolve to hike interest rates at next week’s” meeting.
To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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