Global Confidence Holds Near Record as Recovery Gains Momentum

By Shamim Adam and Timothy R. Homan

Dec. 16 (Bloomberg) -- Confidence in the world economy held near a record high as reports showed the U.S. recovery is gaining momentum and more banks repaid government bailout funds, according to a Bloomberg survey of users on six continents.

The Bloomberg Professional Global Confidence Index fell to 58.9 this month from 60.3 in November. The series that began two years ago reached its highest in October with a reading of 61.7. The index exceeded 50 for a fifth month, which means there were more optimists than pessimists.

The MSCI World Index has surged 69 percent from its low of the year on March 9 as the global economy emerges from its worst recession since World War II, prompting policy makers to trim emergency stimulus. Financial markets, which fell after state- owned Dubai World attempted to delay debt repayments last month, have recovered as investors bet that default risks are abating.

“There are no signs of the global recovery fizzling out,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam, and a regular survey participant. “The U.S. economy is stepping up a gear, while Europe will see a slower recovery. Even if confidence levels out at this point, it won’t be a disaster.”

The survey of 1,934 Bloomberg users was conducted between Dec. 7 and Dec. 11. Since the previous survey, data showed the U.S. unemployment rate has fallen as employers cut the fewest jobs since the recession began, the euro-area economy emerged from its recession and Bank of America Corp. exited the Troubled Asset Relief Program after repaying $45 billion in government bailout funds.

Bank Repayments

Citigroup Inc. said Dec. 14 it struck a deal with regulators to repay $20 billion to taxpayers by selling equity and debt, while Wells Fargo & Co. yesterday sold $12.25 billion of common stock to help pay back TARP funds.

A measure of U.S. participants’ confidence in the world’s largest economy rose to 47.7 this month from 46.9 in November, the survey showed. U.S. retail sales in November climbed twice as much as economists expected, while exports rose to the highest level in 11 months, government figures showed.

“We’re getting a little more optimism because the labor market is getting close to a bottom,” said Jonathan Basile, a New York-based economist at Credit Suisse Group AG. “We anticipate that the global economy will continue to expand. We don’t see a double dip on the horizon.”

Bloomberg users were mixed on the outlook for their equity markets in the next six months. Respondents in the U.S., Japan and Spain expect shares to decline, while those in France, Germany and Italy predict their markets will extend gains.

Dubai, Greece

Global stocks, oil and gold prices slid after Dubai’s Nov. 25 announcement that state-owned Dubai World would seek to delay debt repayments. The neighboring emirate of Abu Dhabi on Dec. 14 provided $10 billion to help Dubai World avoid defaulting on a $4.1 billion bond payment.

Greece’s sovereign rating was downgraded this month by Fitch Ratings, which cited weakening public finances. The country has said there is no risk it will default or seek a bailout.

“Dubai and Greece showed us that the global deleveraging is not complete and financial pressures are continuing to build in both the public and private sectors,” said Klaus Baader, co- chief European economist at Societe Generale SA in London. “Global confidence is likely to stabilize at current levels until we see the weight of some of the restraining factors scaled back.”

Western Europe

The confidence gauge for Western Europe rose to 50.9 from 47.7 last month, exceeding 50 for the first time. Bloomberg users in Spain remained the most pessimistic in Europe even as its confidence index rose to 24.5 from 17.7 in November. Spain accounted for almost half of the euro region’s increase in unemployment over the past year.

Sentiment dipped in Japan on concern the yen’s rise to a 14-year high against the dollar will threaten profits and market share for companies including Sony Corp. The confidence gauge for Japan dropped to 29.5 from 29.9, while Asia’s index rose to 76.2 from 76.

Respondents turned bullish on the U.S. dollar for the first time since March, expecting it to strengthen in the next six months against the world’s most actively traded currencies. The trade-weighted Dollar Index has gained more than 2 percent in the past month. The dollar confidence index rose to 52 from 42.4 in November.

“Sovereign debt issues are a significant reason the dollar has strengthened in the last three weeks, and that brings with it a perception of improvement in the U.S. relative to the rest of the world,” said Chris Low, chief economist at FTN Financial in New York, who participated in this month’s survey.

Users in Japan are less confident the yen will rise against the dollar, with the index falling for a third month to 50.6 from 53. Respondents in France, Italy and Spain expected the euro to weaken against its U.S. counterpart.

Survey participants in the U.S. and Europe remained confident short-term interest rates will rise in the next six months, the survey showed.

To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net