Economic confidence in the euro region unexpectedly declined in March, signaling that the economy may struggle to regain strength in the first quarter.
An index of executive and consumer sentiment in the 17- nation euro area fell to 94.4 from a revised 94.5 in February, the European Commission in Brussels said today. Economists had forecast a gain to 94.5 from a previously reported 94.4, the median of 29 estimates in a Bloomberg News survey showed.
European finance ministers earlier this month awarded 130 billion euros ($173 billion) in aid to Greece to stem the debt crisis, which is eroding consumer demand and prompting companies to cut spending and jobs. With nations from Spain to Ireland in recession and euro-area manufacturing output declining more than economists forecast in March, the economy may have slipped into recession in the first quarter, economists said.
“We’ll see a recession in the euro region with the debt crisis weighing on development,” said Gerd Hassel, an economist at BHF Bank AG in Frankfurt. “Economic confidence could show a slight improvement over the coming months. We’ll see a very gradual economic recovery, which will be reflected in climate indicators.”
The euro declined after the report, trading at $1.3301 at 11:18 a.m. in Brussels, down 0.1 percent on the day.
German gross domestic product may rise 0.6 percent this year, while the economies of Italy, Spain, the Netherlands, Belgium and Greece are seen shrinking, the European Commission forecast on Feb. 23. The euro-region economy may contract 0.3 percent in 2012 before returning to growth, it said.
With governments cutting spending to plug budget deficits and rising energy costs sapping the purchasing power of companies and consumers, the economy is showing few signs of recovery after shrinking 0.3 percent in the fourth quarter. Euro-area services and manufacturing output contracted more than economists forecast in March and unemployment increased to 10.7 percent in January, the highest in more than a decade.
A gauge of sentiment among European manufacturers dropped to minus 7.2 in March from minus 5.7 in the previous month, today’s report showed. An indicator of services confidence rose to minus 0.3 from minus 0.9, while a gauge of consumer sentiment advanced to minus 19.1 from minus 20.3. An indicator of construction also declined this month.
Policy makers have stepped up efforts to fight the crisis with the European Central Bank’s injection of more than 1 trillion euros into the banking system helping bolster investor sentiment. ECB President Mario Draghi said on March 8 that the outlook for the euro region has “improved enormously” and there are “many signs of returning confidence.”
Greece reached a debt-swap deal with its private creditors earlier this month and European leaders approved a second bailout package. Euro-region governments have also signed up to a tighter set of budget rules.
Germany’s DAX benchmark index has increased 18 percent this year, while the Euro Stoxx 50 Index advanced 7.7 percent.
Some companies have relied on faster-growing economies to bolster sales. Lanxess AG (LXS), the German chemical maker spun off from Bayer AG (BAYN) in 2005, on March 22 reported fourth-quarter earnings that beat analysts’ estimates on higher demand in markets including Brazil and China. Salvatore Ferragamo (SFER) SpA, an Italian maker of $895 sandals, earlier this month forecast “significant” growth in 2012, partly on Asian growth.
A gauge of euro-region manufacturers’ production expectations fell to 1.4 from 3 in February, today’s report showed. An indicator of order books slipped to minus 17.1 from minus 14.2 and a measure of employment expectations declined to minus 4 from minus 3.7. An indicator of consumers’ savings over the coming 12 months fell to minus 11.3 from minus 10.7 in February, with an indicator of price developments over the coming year slipping to 24 from 26.4.
ECB Executive Board member Jose Manuel Gonzalez-Paramo from Spain said on March 23 the central bank is “confident that in the coming quarters” there will be a recovery. His German colleague Joerg Asmussen told Helsingin Sanomat in an interview published on March 26 that council members “have to start to think about how to prepare the exit.”
“We’ve done a lot,” ECB council member Erkki Liikanen said in an interview on March 15. “We must also decide how and when we exit and in a controlled and timely manner.”
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