By Shamim Adam
March 12 (Bloomberg) -- Confidence in the world economy dropped in March as the slump proved deeper than forecast and the Obama administration launched new rescues of financial institutions, a survey of Bloomberg users on six continents showed.
The Bloomberg Professional Global Confidence Index fell to 5.95 this month from 8.5 in February. A reading below 50 means pessimists outnumber optimists. Sentiment about Europe and the U.S. slid, while respondents in Asia were less pessimistic about their region, the survey showed.
The global economy may shrink for the first time since World War II, with trade collapsing by the most since the Great Depression, the World Bank said this month. The erosion of confidence is exacerbating the decline; U.S. banking stocks are down 26 percent since the last survey despite a third effort by the government to help Citigroup Inc.
“The financial crisis and the economic recession are feeding on each other, and that’s adding to pessimism,” said Martin van Vliet, an economist at ING Bank in Amsterdam who took part in the survey. “We’re still in no man’s land waiting for stimulus packages to take effect. The light at the end of the tunnel is still far away.”
Reports this week indicate the global economy is weakening further. German factory orders fell 38 percent in January from a year earlier, the government said yesterday, while orders for Japanese machinery retreated for a fourth month.
A measure of U.S. participants’ confidence in the world’s largest economy dropped to 5.2 from 8.6, the survey showed. Sentiment declined in most other markets, with the index for Italy dropping to 5.5 from 9.3. The gauge for Western Europe fell to 8.2 from 9.1.
Obama’s Stimulus Plan
The survey of more than 3,600 Bloomberg users was conducted between March 2 and March 6. Since the previous survey, President Barack Obama signed into law a $787 billion stimulus package, the European Central Bank and the Bank of England cut rates to record lows and more Americans filed for jobless benefits than at any time since 1982.
European governments have committed more than 1.2 trillion euros ($1.5 trillion) to protect their banking systems and leaders pledged to spend a combined 200 billion euros to try to lift their economies out of the worsening slump. Asia-Pacific nations have announced more than $700 billion in such plans.
The measures have failed to boost confidence that they will spur a recovery in growth. Global stock markets have lost $5.9 trillion this year, after about $28.7 trillion was wiped from the value of world equities in 2008.
Citigroup Shares
The U.S. government, which has channeled $45 billion into Citigroup, agreed to a third rescue on Feb. 27 that will give it a 36 percent stake in the lender. Once the world’s biggest bank by market value, Citigroup fell below $1 in New York trading last week for the first time.
Citigroup shares jumped 38 percent in New York on March 10 after Chief Executive Officer Vikram Pandit said the bank was profitable in January and February and is having its best quarter since the third quarter of 2007.
Bank of America Corp. has also received $45 billion of bailout funds, while the government committed more money to avoid a collapse of American International Group Inc.
“There’s still concern about failures” of banks, said Jonathan Basile, an economist at Credit Suisse Holdings USA Inc. in New York, a survey participant. “If any of these policy actions don’t work, given the environment, we have to expect more to be done in any way, shape or form.”
Job Cuts
Confidence also worsened in the U.S. as employers eliminated 651,000 jobs last month and the unemployment rate rose to 8.1 percent, the highest level in more than a quarter century. More than 103,000 individuals and companies in the U.S. filed for bankruptcy in February, according to a private report.
“The same old pressures of lacking corporate demand, waning consumer demand are really driving the bus in the U.S. downturn,” said Guy LeBas, chief economist at Janney Montgomery Scott LLC in Philadelphia, and a survey participant. “Most of the world is following suit.”
The situation isn’t better in Western Europe. Manufacturing orders in Germany, its biggest economy, collapsed in January as exports plunged. They dropped almost two fifths from a year earlier and 8 percent on the month, four times as much as economists forecast.
“The annual slump is absolutely catastrophic,” said Alexander Koch, an economist at UniCredit MIB in Munich. “The extent of declines is terrifying.”
ECB Outlook
The ECB last week said the euro-region’s economy may shrink as much 3.2 percent this year, three times worse than expected. It lowered its main refinancing rate by 50 basis points to 1.5 percent on March 5 and wouldn’t rule out more reductions.
In Latin America, confidence rose to 11.6 in March from 10.4 percent last month, while the index for Asia increased to 12.7 from 11.6. The reading for Japan fell to 4.5 from 5.
Respondents around the world still expect short-term interest rates to fall, the survey showed.
The majority of Bloomberg users from Mexico City to Madrid became more pessimistic on stocks, the survey showed. The MSCI World Index has dropped 14 percent in the past month.
The U.S. dollar may rise in the next six months against the world’s most active currencies, with the index climbing to 53.4 compared with 50.2 in February, the survey showed.
Users in Japan are now almost evenly divided on the direction of the yen against the dollar compared with February, when the majority expected an appreciation. U.K. participants expect the pound to weaken against its U.S. counterpart.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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