Euro-Area Economic Confidence Drops More Than Forecast

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Photographer: Jim Dyson/Getty Images

A stencil and spray paint artwork by graffiti artist Banksy in London.

Economic confidence in the euro region declined more than economists had forecast in April, as the region’s slump showed signs of deepening.

An index of executive and consumer sentiment in the 17- nation euro area fell to 92.8 from a revised 94.5 in March, the European Commission in Brussels said today. Economists had forecast a drop to 94.2 from a previously reported 94.4, the median of 29 estimates in a Bloomberg News survey showed.

Europe’s economy is faltering as spending cuts across the region undermine hiring and consumer confidence. Deutsche Bank AG, Germany’s largest bank, today reported a 33 percent drop in first-quarter profit, with Chief Executive Officer Josef Ackermann calling investors’ “risk appetite markedly lower.”

“With more austerity in the pipeline and the debt crisis still unresolved, any significant pickup in economic confidence in the remainder of this year might fail to occur,” said Martin van Vliet, an economist at ING Group in Amsterdam. “This could jeopardize a return to modest positive growth later this year.”

The euro pared gains after the report was released, trading at $1.3226 at 11:40 a.m. in Brussels, up 0.1 percent.

The euro-area economy probably continued to shrink in the first quarter after contracting 0.3 percent in the previous three months. The region’s manufacturing industry contracted for a ninth straight month in April and unemployment rose to 10.8 percent in February.

Monti’s Austerity Plan

In Italy, business confidence dropped to the lowest since October 2009, Rome-based national statistics institute Istat said today. Prime Minister Mario Monti’s Cabinet, which is implementing a 20 billion-euro austerity plan to reduce the country’s budget deficit, said earlier this month the economy may shrink 1.2 percent in 2012.

A gauge of sentiment among European manufacturers dropped to minus 9 from minus 7.1 in March, today’s report showed. An indicator of services confidence slipped to minus 2.4 from minus 0.3, while a gauge of consumer sentiment slumped to minus 19.9 from minus 19.1. Sentiment in the construction industry also declined this month.

It “is a thoroughly depressing survey all around,” said Howard Archer, chief European economist at IHS Global Insight in London. “Indeed, April’s marked drop in euro-zone consumer and business confidence means that the gains in sentiment made in the first two months of the year have been wiped out.”

U.S. Forecasts

Reports of faltering economies across Europe contrast with signs of recovery in other parts of the world. South Korea’s economy expanded at the fastest pace in a year in the first quarter, with gross domestic product rising 0.9 percent, the Bank of Korea said today. In the U.S., fewer Americans probably filed applications for unemployment benefits last week, a Bloomberg survey shows.

The Federal Open Market Committee said yesterday in Washington that growth will “pick up gradually” in the world’s largest economy. Officials also upgraded their projections for economic growth, inflation and the unemployment rate for this year.

Pernod Ricard (RI) SA, France’s largest distiller, today reported third-quarter sales that beat analysts’ estimates, partly on demand in emerging markets such as China. Volkswagen AG (VOW), the world’s second-biggest carmaker, also beat forecasts with first-quarter profit figures today.

‘Epicenter’

The International Monetary Fund raised its global growth forecast for the first time in more than a year on April 17, estimating a 3.5 percent expansion this year. Managing Director Christine Lagarde said two days later that Europe remains the “epicenter” of potential risks.

While governments from Ireland to Spain have toughened austerity measures to contain the fiscal crisis, investors remain unconvinced. Spanish 10-year yields breached 6 percent last week and the cost of insuring the country’s bonds against default advanced to a record.

The crisis is also hurting companies. Deutsche Bank said first-quarter net income dropped to 1.38 billion euros, missing the average estimate of nine analysts in a Bloomberg survey. Alcatel-Lucent SA (ALU), France’s largest telecommunications equipment supplier, today reported a first-quarter operating loss on declining European demand.

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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