European Confidence Declines to Record Low as Recession Deepens

By Svenja O’Donnell

March 30 (Bloomberg) -- European confidence fell to the lowest on record in March as the global recession deepened, forcing companies to cut production and jobs.

An index of executive and consumer sentiment in the euro region declined to 64.6 from 65.3 in February, the European Commission in Brussels said today. That is the lowest since the index was first published in 1985, and less than the 65.4 median forecast of 27 economists in a Bloomberg News survey.

Europe is experiencing the worst recession since World War II as the financial crisis forces companies to reduce output and fire workers. Unemployment in Europe and the U.S. will reach 10 percent this year, the Organization for Economic Cooperation and Development said today, as companies from Volkswagen AG to Renault SA scale back production.

“Confidence in Europe is clearly being depressed by worries about rising unemployment,” said Nick Kounis, chief European economist at Fortis in Amsterdam. “The economy is going to be very weak in the first quarter. We’re talking about a very deep recession.”

Europe’s manufacturing and service industries contracted for a 10th month in March and job cuts accelerated, a survey of purchasing managers by Markit Economics showed on March 24. ElringKlinger AG, a German auto-parts company whose components are used in Fords and Volkswagens, today forecast the first decline in sales in at least a decade as orders slump.

Price Expectations

The drop in demand has caused inflation pressures to ease. With oil prices down more than 60 percent from a July peak, consumer-price expectations fell for a fifth month in March, reaching the lowest level since the indicator was first published in 1990, today’s survey showed. Manufacturers’ selling-price expectations also dropped to a record low.

Spanish consumer prices declined from a year earlier for the first time ever in March, separate data today showed, highlighting concerns that deflationary pressure will emerge across the European economy.

Euro-area inflation is expected to slow to 0.7 percent in March, which would be the lowest rate in 18 years of record- keeping, according to the median estimate of 35 economists in a Bloomberg survey. That data is due tomorrow.

The ECB has already cut its key interest rate to a record low of 1.5 percent since early October.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.