World Confidence Drops as Slump Deepens, Bloomberg Survey Shows

By Brian Swint

Dec. 18 (Bloomberg) -- Confidence in the world economy fell in December as a recession spread beyond the U.S. and growth weakened in China and Latin America, a survey of Bloomberg users on six continents showed.

The Bloomberg Professional Global Confidence Index slipped to 6.1 from 6.6 in November. A reading below 50 means pessimists outnumber optimists. The index, which is a year old, reached an all-time low of 4 in October.

“Confidence is still very shaky,” said Alvin Liew, an economist at Standard Chartered Plc in Singapore, who took part in the survey. “Some countries are already in recession and 2009 will be even more challenging.

Shrinking economies in the U.S., Europe and Japan are forcing policy makers to push interest rates toward zero and try to resuscitate consumer and business spending by buying bonds directly and guaranteeing loans. In China and Brazil, a collapse in exports and commodity prices is undermining economies once considered a bulwark against a global downturn.

The U.S. Federal Reserve yesterday cut the main U.S. interest rate to between zero and 0.25 percent and said it “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.”

A measure of confidence in the U.S. increased to 7 from 6.9, the survey showed. Sentiment worsened in most other surveyed economies, with the index for Japan halving to 3.9 from 8. The gauge for Western Europe fell to 6.5 from 9.2 and the reading for the U.K. slipped to 4.1 from 4.8.

‘Bad News’

The survey of 2,991 Bloomberg users in 10 countries was conducted between Dec. 8 and Dec. 12. Since the November survey, U.S. jobless claims surged to a 26-year high, recessions were confirmed in Japan and the euro region, and Chinese exports fell for the first time in seven years.

“It’s bad news on top of bad news,” said Lindsey Piegza, an economist at FTN Financial in New York. “People are wondering who’s going to fail next, who’s going to lie to us, and there’s just a lot of mistrust and skepticism. Confidence in the banking and financial system has been eroded.”

The global crisis has cost banks almost $1 trillion so far in writedowns and losses. Citigroup Inc. announced plans to eliminate 52,000 jobs and accepted a $45 billion bailout from the U.S. government. Bernard Madoff was arrested last week for allegedly defrauding investors of $50 billion in a Ponzi scheme.

The International Monetary Fund on Nov. 6 forecast that global growth will slow to 2.2 percent in 2009 from 3.7 percent this year.

Emerging Markets Hit

“Economies previously regarded as doing well have taken a dive,” said Dominic Bryant, an economist at BNP Paribas SA in London and a regular participant in the survey. “It’s going to get very bad before it gets better.”

The Bloomberg confidence index for Brazil, where economic growth accelerated in the third quarter, slipped to 16.6 from 30.2.

“People are scared,” said Roberto Padovani, a senior strategist at Banco WestLB do Brazil SA in Sao Paulo who took part in this month’s survey. “The dive in the U.S. is much bigger than expected and good fundamentals in Brazil and China aren’t enough to offset pressure in the other direction.”

Bloomberg users in all surveyed countries expect short-term and central bank interest rates to fall further, the survey showed. The U.K. has already cut borrowing costs to the lowest since 1951 and the European Central Bank last month cut its benchmark rate the most in its 10-year history.

Views were almost evenly divided on whether the U.S. dollar will rise or fall in the next six months against the world’s most active currencies, with the index at 50.2 compared with 60 in November. The majority of users in the U.K. expect the pound to depreciate further.

U.K. unemployment rose at the fastest pace since 1991 in November, the country’s statistics office said today.

“We are in the weakest spot,” said Aurelio Maccario, chief euro-area economist at UniCredit SpA in Milan and a participant in the survey. “We are bound to experience the current weakness until after the first quarter of 2009.”

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.