Global Sentiment Stays Near Rock-Bottom, Bloomberg Survey Shows

By Shobhana Chandra and Fergal O'Brien

Nov. 12 (Bloomberg) -- Confidence in the world economy stayed near rock-bottom in November as a global recession loomed, a survey of Bloomberg users on six continents showed.

The Bloomberg Professional Global Confidence Index was at 6.6 compared with 4 in October, the lowest level since the survey started a year ago. A reading below 50 means pessimists outnumber optimists. Central banks in Europe, Asia and Latin America are increasingly likely to pare borrowing costs further, according to the survey.

Policy makers from New Zealand to the U.S. have cut rates in the past month to counter a jump in credit costs and avert a protracted recession. China, the world's largest developing economy, this week announced an economic stimulus package worth almost a fifth of its output and leaders of the world's 20 biggest economies meet in Washington on Nov. 15 to plot a strategy to shore up global expansion.

``There is very little that policy makers can do to help the economy over the next six months,'' said Philip Shaw, chief economist at Investec Securities in London, who participated in the survey. ``What they can do is try to lessen the depth and length of the recession. In the meantime, economic news is going to continue to deteriorate.''

The survey, conducted from Nov. 3 to Nov. 7, reflects responses from 3,550 Bloomberg users in cities from Dubai to New York.

IMF Gloom

The International Monetary Fund last week predicted economic contractions next year in the U.S., Japan and euro region, the first simultaneous recession since the end of World War II. It also called for further interest-rate cuts and warned of growing risks of deflationary conditions in advanced economies.

Receding inflation may allow central banks to trim rates further, European Central Bank President Jean-Claude Trichet said earlier this week. The ECB lowered its benchmark rate by half a percentage point to 3.25 percent on Nov. 6, while the Bank of England slashed its key rate by 1.5 percentage points to 3 percent, the lowest since 1955.

The actions followed the U.S. Federal Reserve, which on Oct. 29 cut its target rate to 1 percent, matching the lowest level in a half-century. Two days later, India's central bank unexpectedly reduced its benchmark interest rate for the second time in two weeks. Japan, China, Norway and Switzerland have also lowered borrowing costs.

Lower Interest Rates

Respondents to the Bloomberg survey expect central banks to cut rates in all 10 countries covered. Excluding the U.S., all central banks are seen accelerating reductions.

``The rest of the world has a lot more room to get their interest rates somewhere close to the U.S. level,'' said Markus Schomer, global economic strategist at AIG Global Investment Group in New York. ``All of the developed world is essentially in a recession. Asia hasn't been spared either'' from a slowdown.

The euro-area economy probably shrank for a second successive quarter in the three months through September, according to a separate survey by Bloomberg News. The slump has continued into the current quarter, with manufacturing and services activity shrinking for a fifth month in October.

When asked about their own economies, French respondents were the most pessimistic, with the index down to 2.9 this month from 9 in October. The slowdown, aggravated by the financial crisis, has spread to emerging markets from industrial economies such as the U.S. and Japan, whose central bank cut interest rates on Oct. 31 for the first time in more than seven years.

Even Brazil

In a sign of the spillover across the world, Tesco Plc, Britain's largest retailer, on Nov. 10 reported deteriorating sales in China and South Korea. While Brazilians were the least pessimistic among survey respondents, for the first time since the start of the year they see the country's central bank lowering its benchmark Selic interest rate.

Concerted moves by central banks and rescue plans by governments may help contain the damage in the wake of the worst financial meltdown since the Great Depression. The regional economic outlook was little changed in the U.S. and Western Europe, according to the Bloomberg survey, while readings for Latin America and Asia signaled the downturn may not worsen.

``By the first quarter of next year, we should have seen the worst,'' said Aurelio Maccario, chief euro-zone economist at Unicredit MIB in Milan. ``After that, the recovery will be very, very slow and very tentative. That is why there is the need to cut aggressively.''

Tough Start for Obama

In the U.S., recent reports signal the steepest economic decline in decades and a tough start for Barack Obama's presidency. The U.S. unemployment rate in October rose to the highest level since 1994 and employers fired more than half a million workers in the past two months. A record expansion in consumer spending, the biggest part of the American economy, ended last quarter.

The country-specific U.S. confidence index rose to 6.9 from 5 in October. This may reflect, in part, the prospect that Fed and government action will help the U.S. reach a bottom and emerge from the slump faster than Europe, said Schomer at AIG.

Even so, ``we have to get through the fourth quarter, which will be the worst, for things to start to get stable,'' he said. ``If the measures bring forward the recovery next year, we could begin to see less-negative numbers.''

The next survey will be conducted on Dec. 8 to Dec. 12.

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