London, March 22 (Bloomberg) -- Bad news is breaking out all over Europe. Stock indexes in Europe's eight largest markets fell to 52- week lows. Theeuro dropped to its lowest level in three months against the dollar. VolkswagenAG predicted a ``significant'' decline in worldwide car sales. A French reportsaid consumer spending declined in February at the fastest pace in sixmonths and the government cut its growth forecast for 2001. And that's just today. If the policy makers of the European Central Bank aren'tthinking of cutting interest rates to spur economic activity, they should be,analysts said. ``The dike is cracking and it's time for the sandbags,'' said Adolf Rosenstock,an economist at Nomura International Plc who favors an interest-rate cut. The Swiss National Bank today cut interest rates for the first time in two yearsamid concerns the U.S. economic slowdown is spreading to Europe. The Bankof Japan and the U.S. Federal Reserve lowered rates earlier this week. Thatleaves the ECB as the only major central bank not to have cut rates this year. While the next ECB interest-rate meeting is in a week, the bank's publicstatements are sounding more pessimistic.
`Significant' U.S. Slowdown
Yesterday, ECB President Wim Duisenberg said the easing of U.S. growth``may be more significant than previously anticipated.'' It could ``haveimplications for world economic growth and thus for the euro zone,'' he said ina speech in Germany. ECB Chief Economist Otmar Issing said separately thatthe outlook for growth was now ``less bright.'' Just three weeks ago, Duisenberg said the economy of the 12 nations thatshare the euro was ``relatively closed'' and likely to resist a U.S. slowdown,expanding about 3 percent this year. ``Finally the ECB has recognized that the U.S. slowdown is going to have asignificant impact on Europe,'' said Reinhard Pfingsten, a fund manager atADIG Investment Gesellschaft, which manages assets worth about 30 billioneuros ($27 billion). The U.S. buys 13 percent of euro-zone exports, and is the biggest foreigninvestor in the region. Those connections could knock half a percentage pointoff European growth in 2001, analysts said. The euro region's gross domesticproduct will probably expand 2.5 percent. Investors, who last week were predicting the ECB would hold out againstcutting interest rates until the end of the second quarter, are now predicting acut in April. The ECB has boosted its refinancing rate to 4.75 percent in sevensteps between November 1999 and October 2000.
Falling Futures
The yield on three-month interest rate futures contracts for April deliverydeclined 12 basis points today, to 4.46 percent. That's 29 basis points belowthe ECB's key rate, suggesting investors expect a quarter-point cut nextmonth. ``Even the ECB is waking up to the fact that there's now significantly weakerEuropean growth,'' said Philip Isherwood, European equity strategist atDresdner Kleinwort Wasserstein. The Swiss National Bank today cut interest rates by a quarter point, two daysafter the U.S. Federal Reserve lowered the target rate for overnight loansbetween commercial banks to 5 percent from 5.5 percent -- the third U.S. cutthis year. The gloom that's swept Europe has persuaded investors to sell euros andstocks, seeking the safer haven of the bond market. The euro today fell 0.8percent to 88.81 U.S. cents after hitting a three-month low of 88.34. The Dow Jones Stoxx 50 Index, a benchmark for euro-zone stocks, dropped4.1 percent to 3728.03. It's lost almost a fifth of its value this year. Benchmarkindexes in Germany, France, Italy, Spain, Switzerland, the Netherlands,Sweden and the U.K. all fell to their lowest level in a year, and the U.K.'s FT-SE 100 Index posted its worst one-day loss in 13 years. ``The economy isn't going anywhere,'' said Franco Santagata, head ofoperations at Deutsche Post Srl, the Italian unit of Deutsche Post, Europe'sbiggest mail company.
Spending and Confidence Down
French consumer spending declined 0.9 percent in February, the biggest dropsince August, and wage growth slowed in the fourth quarter, reports todayshowed in the latest evidence that growth is slowing. Later in the day, theFinance Ministry said the euro economy's second-largest economy willprobably grow by 2.9 percent this year, down from the 3.3 percent estimatemade in September. Business confidence in Germany, Europe's biggest economy, fell last monthto the lowest level since July 1999, a survey yesterday from the Ifo researchinstitute showed. Europe's six largest carmakers, led by Volkswagen, reported falling sales inFebruary. VW said today that it will cut costs to offset the impact on earningsof a ``significant'' decline in car sales this year, particularly in the U.S.
Job Cuts
In further signs that the U.S. slowdown is curbing European growth, PhilipsElectronics NV said this week that first-quarter profit at its semiconductor unitwill fall 10 percent. And SGL Carbon AG, the second-biggest maker of graphiteelectrodes, also said profit this year will be held back by weak U.S. sales. Last week, companies such as German engineering company Siemens AGand resort operator Club Mediterranee SA said falling U.S. demand will trimearnings. Companies outside the euro region have also said that the U.S.slowdown is affecting business. Invensys Plc, a U.K. factory controls company that generates half its sales inthe U.S., said today that it is eliminating another 2,000 jobs on top of previouscuts of 3,000, as slowing demand in the U.S. cuts second-half profit. The tumbling stock market has led to a slump in mergers and share offerings.The value of European mergers fell to some $210 billion in the first quarter,about half the level of the same period last year, according to Bloomberg data.ABB Ltd, the biggest maker of electrical equipment, yesterday abandonedplans to sell 6 million shares to U.S. investors.
Slower Earnings
Goldman Sachs Group Inc. and Bear Stearns Cos., two investment banks, arefiring staff as business shrinks. Banks and insurers are also seeing aslowdown in earnings. ``Falling markets will impact all types of asset management companies,whether they are insurers or money managers,'' said David Salisbury, chiefexecutive of Schroders Plc, the U.K.'s biggest pension-fund company. Even the agriculture industry, which is typically resistant to a weakeningeconomy, has taken a hit as a result of a series of health scares. Ireland todayreported two cases of foot-and-mouth disease, making it the third country inEurope to discover the virus in cattle. The disease follows a separate ``mad-cow'' disease scare, which, unlike foot-and-mouth, can spread to humans.