Global Confidence Climbs From 10-Month Low as Crude Oil Slides

By Fergal O'Brien and Shobhana Chandra

Aug. 13 (Bloomberg) -- Confidence in the global economy rose from a 10-month low in August as oil prices retreated from record levels, a survey of Bloomberg users on five continents showed.

The Bloomberg Professional Global Confidence Index climbed to 14.1, from 10.3 in July, which was the lowest reading since the survey began in November. This increase was led by a 5.5-point increase to 18.2 among U.S. respondents, while the Western European measure rose 3.4 points to 12.9. A reading below 50 indicates negative sentiment.

The $30 drop in crude-oil prices in the past month is easing pressure on the Federal Reserve to raise interest rates and leaving Americans with more cash just as the impact of tax rebates fades. But the outlook for the global economy remains bleak as expansions in Europe and Japan stall.

``Lower oil prices are usually good news for the U.S., relative to the European economy,'' said Martin van Vliet, an economist at ING Group in Amsterdam, who took part in the survey. In Europe, ``the numbers have taken a turn for the worse recently; in the U.S., the economic news has been bad for a while.''

The survey, conducted between Aug. 4 and Aug. 8, collated the responses of about 3,000 Bloomberg users around the world. It included questions about the outlook for participants' own economies and their regions, as well as for bonds, currencies, stocks and interest rates over the next six months.

Spanish Housing Slump

Respondents in Japan were the most pessimistic about the global outlook. Participants in Spain, where second-quarter growth was the weakest in 15 years because of a housing slump, were the gloomiest about their economy, with a reading of 2.4, followed by the U.K. Participants in Brazil remained the most optimistic about their economy, at 60.4.

Faltering economic growth in Europe has prompted participants in the region to erase expectations of an interest-rate increase. The gauge in Germany fell to 42.7 from 61.6, signaling respondents in Europe's biggest economy now anticipate that the European Central Bank may cut its key rate in the coming six months. The gauges also declined in France, Italy and Spain.

By contrast, users in the U.S. say the Federal Reserve's next move is more likely to be an increase than a cut, with the index unchanged at 57.3.

European Central Bank President Jean-Claude Trichet said last week that euro-area growth will be ``particularly weak'' through the third quarter. The economy probably contracted in the second quarter for the first time since the creation of the euro, according to a separate survey of economists.

In the U.K., the index for the Bank of England's benchmark rate fell to 46 from 51.2, also indicating participants expect a reduction in interest rates there.

U.S. Slump

The U.S. slowdown is aggravated by the credit crisis triggered by the worst homebuilding slump in a quarter century. More banks made it harder for businesses and consumers to borrow money as defaults and delinquencies on home loans soared, the Fed's quarterly Senior Loan Officer Survey showed this week.

Fed policy makers, who kept the benchmark rate at 2 percent Aug. 5 after cutting it at a record pace between September and April, said ``financial markets remain under considerable stress.''

A separate Bloomberg survey of 50 economists published on Aug. 11 forecast U.S. growth will average an annual 0.7 percent from July through December, half the pace of the first six months.

Dollar Gains

As the outlook for ECB rates changes, participants in the U.S. and Europe reversed their predictions of a dollar decline. In the U.S., the index rose to 57.5, while the euro gauge dropped below the 50 breakeven point in Germany and France.

The euro has fallen 6 percent in the last three weeks and declined below $1.50 this week for the first time in more than five months.

``It's no longer the case that the U.S. is slowing down in isolation,'' said Paresh Upadhyaya, who helps oversee about $50 billion in currencies as a senior vice president at Putnam Investments in Boston. ``Markets are pricing in weaker global growth and the possibility of other central banks joining the Fed in the easing cycle. The fundamentals are in place for a gradual improvement in the dollar.''

The index of Asian confidence in the world economy was little changed at 8 this month after 7 in July. In Japan, respondents became more pessimistic about their own economy.

Japan, the world's second-largest economy, contracted in the second quarter, bringing the country to the brink of its first recession in six years, the Cabinet Office in Tokyo said today. The government this month said the economy is ``deteriorating,'' acknowledging for the first time that the country's longest postwar expansion has probably ended.

``While the Americans may be doing the dance of joy around a cheaper tank of oil, the rest of the world has a lot more to worry about,'' said Song Seng Wun, an economist at CIMB-GK Securities Pte. in Singapore. ``Asian policy makers are more concerned that weakening energy and commodity prices are a reflection of slower economic growth momentum, implying a deteriorating outlook.''

The next survey will be conducted Sept. 8 to Sept. 12.

To contact the reporters on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net.