Jan. 6 (Bloomberg) -- European confidence in the economic outlook fell to the lowest in more than two years and German factory orders plunged as the euro area’s leaders struggled to contain a worsening fiscal crisis and global demand weakened.
An index of executive and consumer sentiment in the 17-nation euro area fell to 93.3 in December, the European Commission in Brussels said today. That’s in line with the median of 19 economists’ estimates in a Bloomberg survey. Factory orders in Germany, the region’s largest economy, dropped 4.8 percent in November, the most in almost three years, according to the Economy Ministry in Berlin.
French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet on Jan. 9 to discuss Europe’s new fiscal pact before a European Union summit at the end of the month. As governments tighten austerity measures amid high unemployment, households and businesses are more reluctant to spend and the prospect of a recession looms.
“Things are really starting to slow down,” Jennifer McKeown, senior European economist at Capital Economics in London, said by telephone. “There’s an underlying economic downturn going on at the same time as the peripheral debt crisis continues. Even the strongest parts of the euro-zone economy are beginning to falter. We see the euro zone beginning to break up, perhaps as soon as this year.”
Recession of Unknown Scope
Luxembourg Prime Minister Jean-Claude Juncker said on Jan. 4 that the EU is on the brink of a recession of unknown scope. The European Central Bank forecasts that the euro region’s economy will expand 0.3 percent in 2012, while the European Commission sees growth at 0.5 percent.
The euro is headed for a fifth weekly loss against the dollar. The single currency erased gains after the German data were released, trading at $1.2785 at 12:19 p.m. in Frankfurt, down less than 0.1 percent on the day.
The euro-area unemployment rate remained at a 13-year high of 10.3 percent in November, a separate report showed. Spain recorded the region’s highest unemployment rate of 22.9 percent. Among young Spaniards the rate rose to 49.6 percent. Euro-area retail sales slipped 0.8 percent in November.
The gloomy economic indicators in Europe followed the news from Asia that Japan’s recovery from the aftermath of a record earthquake was probably cut short in the fourth quarter as the impact of the euro-area fiscal crisis outweighed the support from reconstruction spending.
Gross domestic product probably shrank in October and November, pointing to a 0.1 percent contraction for the quarter, according to calculations by the Japan Center for Economic Research, an independent analysis group in Tokyo. A third contraction in four quarters would widen Japan’s gap with China, which overtook it as the world’s second-largest economy in 2010.
This contrasted with the U.S., where hiring probably accelerated in December for a second month, pointing to a strengthening labor market heading into 2012, economists said before a report later today.
Payrolls climbed by 155,000 workers after rising 120,000 the previous month, according to the median forecast of 84 economists surveyed by Bloomberg News. The unemployment rate rose after dropping in November to the lowest level in more than two years, the report may also show.
While Europe’s debt crisis has clouded Germany’s economic outlook and cooling global growth is hurting export orders, the country may still avert a recession. Unemployment at a two-decade low is helping to bolster consumer sentiment and business confidence unexpectedly rose for a second month in December.
Orders had “a strong showing in the previous month,” said Johannes Mayr, an economist at Bayerische Landesbank in Munich. “The euro debt crisis is an issue for manufacturers as it damps foreign orders, but we expect the domestic economy to be strong enough to avoid a severe weakness overall.”
Industrial orders across the euro area increased 1.8 percent in October, less than economists had estimated, according to the European Union’s statistics office in Luxembourg. On Jan. 2, London-based Markit Economics said a manufacturing gauge based on a survey of purchasing managers in the euro region rose slightly in December, though it still indicated a fifth month of shrinking output.
A gauge of confidence among European manufacturers held at minus 7.1 in December, the lowest since April 2010, the European Commission said today.
“Confidence has been ebbing away for some time now and there’s no reason to suppose economic confidence is going to turn up any time soon,” said Peter Dixon, an economist at Commerzbank AG in London. “Depending on how deep the recession ends up being we could see further dramatic declines.”