By Emma Vandore
/www.bloomberg.com/
Brussels, Nov. 29 (Bloomberg) -- European consumer confidence declined to the lowest in more than five years in November and inflation slowed for the first time since June, increasing the odds the European Central Bank will trim interest rates next week.
A European Commission survey of 25,000 consumers in the dozen nations sharing the euro fell to minus 14 from October's minus 12. A survey of the same number of companies showed they expect to reduce jobs. The inflation rate dropped to 2.2 percent from 2.3 percent in the previous month.
``At work, they've said we are 1,500 people too many and that's scary,'' said Aysel Celik, 24, an employee of Axa SA in Brussels. ``I'm being more careful about spending. You never know what tomorrow will bring.''
Europe's economy will this year expand at the slowest pace in nine years, according to the commission, the European Union's executive branch. That's spurred companies including Siemens AG and Fiat SpA to trim jobs. ECB officials have signaled they're ready to help by cutting rates as inflation slows.
``Price stability in the medium-term is not endangered,'' ECB council member and Bundesbank President Ernst Welteke said in a speech today at the University of Siegen. ``The current economic situation in the euro zone is disappointing. European companies are hesitant about investing.''
Investors expect the 18 policy makers to lower borrowing costs, futures trading suggests. The implied yield on the three-month Euribor futures contract for December is at 2.93 percent, more than a quarter point less than the ECB's benchmark rate of 3.25 percent. ECB policy makers next meet on Dec. 5.
`Don't Feel Like Buying'
In the U.S, where the Federal Reserve has cut rates three times as much as the ECB since the start of last year, consumer confidence is climbing. The University of Michigan's sentiment index increased to 84.2 in November from 80.6 in October.
Job losses at companies such as Siemens, Germany's largest electronics and engineering company, may damp consumer spending, which accounts for about half the economy. The commission expects the unemployment rate in the 12 nations using the euro to rise to 8.3 percent next year from 8.2 percent.
``People don't feel like buying,'' said Christine Vermeersch, chief financial officer of Brantano Group NV, Belgium's largest shoe retailer. The company said profit fell 31 percent in the third quarter. ``They're more price conscious and saving money.''
The ECB, which aims to limit price rises to 2 percent, has denied Europe's economy a boost for the past year. All bar three of the 30 economists surveyed by Bloomberg News expect the ECB to cut rates then, with 22 predicting a half-point reduction.
``Consumer confidence is falling off a cliff,'' said Ken Wattret, an economist at BNP Paribas SA, in a research note. ``That must be worrying for the ECB and supports our belief that they'll grasp the nettle and cut by 50 basis points on Dec. 5.''
Business Confidence
Some companies are reporting an improvement in earnings. Companies such as TUI AG, Europe's biggest travel company, and Wienerberger AG, the world's largest brickmaker, are reporting profit gains after cutting costs. The Dow Jones Euro Stoxx 50 index has risen 24 percent since Oct. 9 when the index hit the lowest point since it was launched in February 1998.
The industrial confidence indicator rose to minus 10 from minus 11, today's report showed. Business optimism increased in France, Italy and Belgium in November as growth picks up in the U.S., which buys about a fifth of Europe's exports.
``Fears of a double dip in the U.S. are receding,'' said Mike Taylor, an economist at Merrill Lynch & Co. in London. ``People's worst fears aren't being realized.''
The Fed lowered its overnight rate on Nov. 6 by half a percentage point to 1.25 percent. Reports since have shown the U.S. economy is picking up. Growth in the third quarter accelerated to a greater than expected 4 percent annual rate.
`Too Early'
Still, ``it's too early to say that the outlook is getting better,'' Taylor said. ``As long as its getting worse or remains flat, I think the ECB will be cutting.''
The German economy, Europe's largest, barely grew for a third quarter. Unemployment rose to the highest in almost four years in October. Deutsche Telekom AG this month posted the region's biggest quarterly loss.
``We'll have very moderate growth, or maybe slight declines, this quarter and next,'' Hans-Helmut Kotz, a member of the Bundesbank's executive board, said in an interview.
The government hasn't helped confidence. Chancellor Gerhard Schroeder has cut back on subsidies and raise taxes to raised pensions contributions paid by employers and workers by as much as $136 a month per worker to cover shortfalls in the state retirement fund.
``The problem in Europe is Germany,'' said Uwe Dristel, chief financial officer of Rinol AG, Europe's largest maker of industrial floor coverings. ``Demand in Germany is weak.''
Hewlett-Packard
Hewlett-Packard Co.'s managing director for Europe, Kasper Rorsted, said he sees no growth in the euro countries next year. Credit Agricole SA, France's second-largest bank, said third-quarter earnings declined on investment losses.
``To strengthen confidence in Europe and foster growth, Europe needs lower interest rates,'' said Martin Huefner, economics committee chairman of the European Banking Federation, which represents over 4,000 banks in Europe. ``If rates are not cut, growth will be some decimal points lower.''