By Emma Vandore and Francois de Beaupuy
Brussels, (Bloomberg) -- European consumers were more pessimistic than at any time in the past 5 1/2 years in December, adding to signs the region's economy may shrink.
A European Union index fell to minus 16 from minus 14 in November, according to a survey of 25,000 households in the dozen nations using the euro. The number of people pessimistic about the economy and unemployment outnumbered those who were optimistic.
Consumer spending, which accounts for more than half of the economy, is faltering as unemployment rises. Renault SA forecast demand for cars in Western Europe may slide as much as 6 percent this year. The region's $7 trillion economy may contract as much as 0.2 percent this quarter, the EU estimates.
``I'm out of a job for the time being, so a `new' second-hand car is out of the question,'' said Bob Verschuur, 27, who used to work as a printer, as he pushed his broken-down 14-year-old Volvo to the side of an Amsterdam street.
Companies from ASML Holding NV, Europe's largest maker of semiconductor equipment, to Commerzbank AG are shedding jobs. The region's jobless rate is 8.4 percent, the highest in 2 1/2 years.
Stocks fell. The Dow Jones Stoxx 50 Index shed 1 percent to 2503.7 at 5:41 p.m. Brussels time. The index fell 37 percent last year. The yield on the 3 1/2 percent German note maturing in December 2004 declined 3 basis points to 2.68 percent. A basis point is 0.01 percentage point.
Retail Sales
In the U.S., consumer confidence fell for the sixth time in seven months in December, the Conference Board said last month, as unemployment threatened to cut spending and economic growth.
German retail sales fell the most in November in more than three years, figures today showed. Metro Group, Germany's largest retailer, said last week it expects Europe's largest economy to remain ``unfavorable.'' The HDE retail association lowered its 2003 sales forecast to a decline of 1.5 percent, from an earlier estimate of a 0.5 percent drop.
``People have been holding back because of fears of job losses,'' said Paul De Grauwe, a Belgian legislator who was the country's candidate for vice president of the European Central Bank last year. ``The economic climate will worsen.''
The number of Germans out of work probably climbed to a 4 1/2- year high of 4.2 million in December, economists said in advance of a government report on Thursday.
`Worst-Case Scenario'
Carrefour SA of France has been cutting prices on goods as diverse as bicycles and duck liver pate to win customers from rivals. Europe's largest retailer promised to pay customers 10 times the difference in price should they could find Christmas toys cheaper elsewhere in France. The company releases fourth- quarter sales on Thursday.
``All the signs point to a relatively weak Christmas sales period,'' said Bruno Catoire, who helps manage 100 million euros ($104 million) at Cholet-Dupont Gestion, including shares of Carrefour.
French shoppers bought 1.7 percent less manufactured goods in November, led by a drop in demand for clothes. Garment retailers, including Naf Naf SA and Brice SA, said sales stagnated in the first half of December. Purchases of cars and light trucks fell 6 percent in December from a year earlier, paced by a drop for PSA Peugeot Citroen, the country's largest carmaker.
``The most probable scenario is a stable market,'' Renault Chief Executive Officer Louis Schweitzer said in an interview at the Detroit car show Monday. ``The worst-case scenario is a decrease of the market of 5 to 6 percent.''
Other executives are more optimistic. A separate EU survey released today showed an index of business confidence improved in December to minus 9. The November reading was revised lower to minus 11 from minus 10.
Possible Iraq War
Some businesses are holding back on investment due to concerns about a possible war with Iraq. KLM Royal Dutch Airlines NV blamed lack of demand for air travel and higher oil prices on the threat of war for its second consecutive annual loss.
``We have to wait and see what happens in Iraq,'' said Gerhard Huemer, chief economist at the European Association of Craft, Small and Medium-sized Enterprises, a lobby representing 7 million employers. ``For a real recovery that must be over.''
Iraq President Saddam Hussein yesterday accused United Nations arms inspectors -- tasked with determining if his country has weapons of mass destruction -- of spying for the U.S. and said his people are prepared for war.
Germany is dragging down growth in Europe. The economy expanded no more than 0.5 percent last year, the Bundesbank estimated. Business confidence is at an 11-month low, the Ifo institute's survey of 7,000 companies showed last month.