Bloomberg News

Euro-Area Economic Confidence Falls More Than Forecast

April 29, 2013

Euro-Area April Economic Confidence Declines More Than Forecast

Daimler AG, the world’s third-largest maker of luxury vehicles, last week cut its 2013 profit forecast after first- quarter earnings tumbled more than expected. Photographer: Guenter Schiffmann/Bloomberg

Economic confidence in the euro area decreased more than economists forecast in April as the 17- nation currency bloc struggled to emerge from a recession and the bailout of Cyprus renewed debt-crisis concerns.

An index of executive and consumer sentiment dropped to 88.6 from a revised 90.1 in March, the European Commission in Brussels said today. That’s the lowest since December. Economists had forecast a decline to 89.3, according to the median of 26 estimates in a Bloomberg News survey.

Business confidence and investor sentiment in Germany, Europe’s largest economy, dropped more than expected in April. European Central Bank President Mario Draghi said on April 19 that the economic situation in the bloc hadn’t improved since the beginning of the month. At the same time, Draghi expects the economy to recover from a recession later this year and economists forecast growth in the second quarter, a separate Bloomberg survey shows.

Today’s survey “supports other evidence that the euro zone is experiencing its longest recession on record,” said Jennifer McKeown, senior European economist at Capital Economics in London. It’s “more bad news that might encourage the ECB to announce more policy support at its meeting this week.”

The euro was little changed against the dollar after today’s data were released. The single currency was trading at $1.3081 at 11:41 a.m. in Brussels, up 0.4 percent on the day.

ECB Meeting

A gauge of sentiment among European manufacturers fell to minus 13.8 from minus 12.3 in March, today’s report showed. An indicator of services confidence dropped to minus 11.1 from minus 7, while consumer sentiment improved to minus 22.3 from minus 23.5.

With doubts about an economic recovery later this year growing, ECB policy makers have signaled they’re looking at a range of measures to boost growth, including cutting interest rates and a program to support lending to small and medium-sized companies. They are due to convene on May 2 in Bratislava for their monthly meeting.

“The flawed bailout in Cyprus has revived uncertainty in Europe,” said Annamaria Grimaldi, an economist at Intesa Sanpaolo SpA in Milan. “But I think the concerns are only temporary and we will see modest growth in the second half of this year.”

Daimler Profit

European officials agreed in March to impose a levy on deposits in Cyprus of less than 100,000 euros ($131,000) as part of a 10 billion-euro bailout. The plan was ditched after the country’s parliament rejected it, and a new accord was reached imposing a tax only on deposits above 100,000 euros, the minimum level of European Union guarantees.

The episode damaged confidence across the euro area. The Stoxx Europe 600 Banks Index (SX7P) dropped 6.8 percent between March 15 and March 27, the day before banks reopened in Cyprus with limits on withdrawals.

Daimler AG (DAI), the world’s third-largest maker of luxury vehicles, last week cut its 2013 profit forecast after first- quarter earnings tumbled more than expected.

“In the first three months of this year, many markets developed worse than expected for economic reasons, especially western Europe,” said Chief Executive Officer Dieter Zetsche.

Some companies are compensating for lower demand in Europe by exporting to faster-growing markets abroad.

U.S. Growth

Robert Bosch GmbH (RBOS), Europe’s biggest car-parts maker, said on April 18 it expects sales to increase as much as 4 percent this year as growth outside the region makes up for a recession in its home market.

Gross domestic product in the U.S. rose less than forecast at a 2.5 percent annualized rate in the first quarter following a 0.4 percent fourth-quarter advance, according to data from the Commerce Department issued last week in Washington.

Americans signed fewer contracts to buy previously owned homes in February, indicating a pause in momentum for an industry that is helping power the economy.

Elsewhere, the Reserve Bank of India will lower its repurchase rate for a third time this year to 7.25 percent from 7.5 percent on May 3, according to 22 of 26 analysts in a Bloomberg News survey.

Back in Europe, Italy’s 10-year borrowing costs declined to a 2 1/2-year low at an auction today after new Prime Minister Enrico Letta was sworn in, ending a two-month political standoff caused by inconclusive elections.

“Market participants seem to be expecting a rate cut” by the ECB, said Carsten Brzeski, an economist at ING Belgium SA in Brussels. Still, “a rate cut without additional efforts to repair the transmission mechanism would quickly go up in smoke and could even be regarded as an act of despair.”

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

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


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