EU economic confidence fallsby Aoife White on Jul. 30, 2008, under Edge
BRUSSELS, Belgium – Business and consumer confidence plunged in the 15 countries using the euro in July, hitting the lowest level in more than five years, the European Commission said Wednesday.
Confidence among consumers and in the construction, industry, retail and services sectors fell to 89.5 in July, the lowest level since March 2003 and the sharpest month-to-month slip since the Sept. 11 terror attacks, according to an EU economic sentiment survey.
Italy and Britain saw sharp drops in confidence with France, Germany and the Netherlands also more downbeat about the future.
The European economy is slowing as soaring fuel and food prices slam the brakes on growth, and amid tight borrowing conditions triggered by the global credit crisis and a slowdown in major trading partners, Britain and the United States.
The EU figures add pressure on the European Central Bank to hold off from further interest rate increases. In an effort to cool record-high inflation, it raised its key borrowing rate from 4 percent to 4.25 percent in June.
Central banks usually cut rates to boost growth and raise them to calm inflation. But Europe and many other regions are seeing their economies lose pace while prices shoot up.
And worse times may lie ahead. Consumer confidence worsened again in July, the EU survey showed. This hits household spending, once the main engine of the euro-zone’s economic expansion as people shell out for fewer big items or luxury goods as they spend more on gas and groceries.
Consumers are also far more worried about unemployment in the near future, according to the survey. The euro jobless rate started in April to climb above a record low, lengthening welfare lineups that are among the longest in the industrialized world.
The results were “even more dismal than expected,” said Holger Schmieding, chief European economist at Bank of America.
“The euro-zone economy has fallen into semi-stagnation,” he said. “The risk of a recession later this year is no longer negligible.”
A separate EU survey of industry managers, the euro-zone business climate indicator, also dropped in July to minus 0.21 — snuffing out one of the few bright sparks as manufacturing stops compensating for other struggling sectors of the economy.
“The low level of the indicator suggests that economic activity in industry, which saw a fall in production in May, remains subdued,” the EU said.
Managers expected less production, lower order books and fewer exports in coming months.