Euro-Area Economic Confidence Unexpectedly Declined in September

Economic confidence in the euro area unexpectedly fell in September as leaders strived to rein in the debt crisis in the single-currency bloc and the economy’s slump deepened.

An index of executive and consumer sentiment in the 17- nation euro area dropped to 85 from 86.1 in August, the European Commission in Brussels said today. Economists had forecast no change in the indicator, the median of 28 estimates in a Bloomberg News survey showed.

European consumers and executives are growing more pessimistic about the outlook after the debt crisis pushed at least five of the countries using the euro into recession. While the European Central Bank announced details of an unlimited bond-purchase plan this month to quell the turmoil, rising borrowing costs from Italy to Spain reflect investors’ concern.

“The ECB measures will be important for consumers and business in the same way they’ll be important for financial markets, in that they remove some of that sense of imminent doom and gloom, but the general macroeconomic environment outlook is pretty miserable,” Jens Larsen, chief European economist at RBC Capital Markets in London, said by phone before today’s report.

Euro-area governments may find it more difficult to plug their budget gaps and restore investors’ confidence after the euro-area economy contracted 0.2 percent in the second quarter and indicators have since shown signs of a deepening slump. Services and factory output fell to a 39-month low this month, Markit Economics said on Sept. 20.

Record Unemployment

Consumer sentiment has also been hit as the euro-area’s unemployment rate is at a record 11.3 percent, with companies from France to Belgium cutting jobs to weather the turmoil.

While Germany’s expansion has helped counter some of the impact of tougher austerity measures, German business confidence unexpectedly fell to the lowest in more than two and a half years in September.

A gauge of sentiment among European manufacturers fell to minus 16.1 from minus 15.4 in August, today’s report showed. An indicator of services confidence dropped to minus 12, while a gauge of consumer sentiment dipped to minus 25.9. Sentiment in the construction industry improved to minus 31.9 from minus 33.1.

Deeper Contraction

A gauge of euro-zone manufacturers’ production expectations declined to minus 10.3 from minus 8.6 in August, today’s report showed. An indicator of order books fell to minus 30.6 from minus 29.4, while an index of employment expectations dropped to minus 13.3.

The European Central Bank on Sept. 6 forecast a deeper economic contraction for 2012 than it did three months earlier, predicting euro-area gross domestic product will drop 0.4 percent this year instead of 0.1 percent.

Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, last month reported its first drop in quarterly profit in almost three years and warned that Europe’s debt crisis could cast further clouds on the global growth outlook. MAN SE, the German truckmaker that lowered its 2012 earnings forecast in July, said on Aug. 31 it may cut production shifts and eliminate additional temporary staff.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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