By Fergal O’Brien
Nov. 27 (Bloomberg) -- European confidence in the economic outlook fell to a 15-year low this month even after radical interest-rate cuts and government stimulus measures aimed at battling the impact of the financial crisis.
An index of executive and consumer sentiment dropped to 74.9 from 80 in October, the European Commission in Brussels said today. The November decline was bigger than economists had forecast and takes the index to the lowest since August 1993. Separate figures showed European retail sales fell the most in at least five years in November.
Central-bank and government packages have so far failed to boost sentiment after the euro-area economy slipped into a recession that may last through 2009. The European Union yesterday announced plans to coordinate 200 billion euros ($258 billion) in measures for the economy, while the European Central Bank has signaled more rate cuts are possible even after lowering its benchmark rate by a full percentage point in a month.
“The economy took a marked turn for the worse in the fourth quarter,” said Nick Kounis, chief European economist at Fortis Bank in Amsterdam. “This adds to the case for a bigger rate cut from the ECB next week than we have seen up until now.”
The Frankfurt-based central bank already has reduced its key rate to 3.25 percent from 4.25 percent since early October. ECB President Jean-Claude Trichet yesterday said he sees “negative growth” in the euro area in 2009, a forecast echoed by EU Monetary Affairs Commissioner Joaquin Almunia today.
‘Downside Risks’
“Downside risks are materializing,” Almunia said in Brussels. “The crisis may not end next year.”
The EU proposal is the latest in a series of measures to counter the impact of a worldwide financial turmoil that has roiled stock markets, shut down access to funding and curbed company investment and hiring. MAN AG, Europe’s third-largest truckmaker, may shorten the workweek at the commercial-vehicle division next year to cope with declining sales.
Ford Motor Co. plans to cut European production by about 10 percent next year, while Bayerische Motoren Werke AG and chemicals maker BASF SE are also scaling back output.
Economists had forecast that the confidence index would decline to 78 this month, according to the median of 29 estimates in a Bloomberg News survey. The euro gained 0.5 percent to $1.2945 against the dollar today, having dropped 1.4 percent yesterday.
Manufacturers’ Confidence
A measure of manufacturers’ confidence dropped to minus 25 this month, the lowest in 15 years, from minus 18 in October, according to the commission report. Sentiment in the services and construction industries also declined.
Today’s commission report also showed that confidence among consumers dropped to the lowest since 1994 this month. The Bloomberg purchasing managers index for retail sales declined to 41 in November from 44 in October, remaining below the 50 limit that indicates contraction for a sixth month.
The decline in energy prices in the last four months has prompted companies and consumers to scale back their predictions for price growth, according to the commission. A gauge of company selling-price expectations fell for a fourth month in November. A gauge of consumers’ outlook for prices dropped to 11 from 19. Crude oil was at $53.83 a barrel today, down almost two-thirds from its July record of $147.27.
The euro-area inflation rate probably eased to 2.4 percent this month from 3.2 percent in October, according to the median of 24 estimates in a Bloomberg News survey. That would be the lowest since September 2007 and makes it easier for the ECB to lower interest rates.
‘Sharp Decline’
“They should cut by 100 basis points next month, I believe. Monetary policy is already behind the curve,” Marco Annunziata, chief economist at Unicredit Group in London, said in a Bloomberg Television interview. “You’re facing a very sharp decline in inflation by the middle of next year.”
The central bank is due to publish new forecasts for economic growth and inflation at the next meeting of its governing council on Dec. 4. It will likely cut its forecast for inflation in 2009 to about 1 percent from 2.6 percent in September, said Kenneth Wattret, an economist at BNP Paribas in London. For the economy, it may forecast a contraction of as much as 0.5 percent, he said.
The EU statistics office will publish its inflation estimates for November tomorrow.
To contact the reporter on this story: Fergal O’Brien in Dublin at fobrien@bloomberg.net.
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