Brussels, March 31 (Bloomberg) -- Consumer confidence in the dozen nations using the euro fell to the lowest in more than nine years in March as the Iraq war discouraged companies from hiring, increasing the risk of the $7 trillion economy contracting. A European Commission survey of 25,000 consumers showed a confidence index dropped to minus 21 from February's minus 19. The index reached a low of minus 29 in August 1993 and a high of 3 in April 2000. The survey was conducted in the first two weeks of March, as the U.S. and U.K. were preparing to attack Iraq. ``Every day the situation is getting worse and worse,'' said Gerhard Huemer, chief economist of UEAPME, the employers' lobby representing over 7 million small- and medium-sized businesses. ``Now nobody sees an end to the conflict.''
Consumers are becoming more pessimistic across Europe, the U.S. and Asia as unemployment rises, curbing demand for products from airline tickets to cars. Consumers, whose spending accounts for more than half the economy, are buying less, companies from Air France SA and Volkswagen AG said. ``With the war, it's not easy,'' said Korotoum Sirima, who is looking for a job. The 23-year-old hairdresser by profession from Brussels said she's being ``very careful'' with spending. ``More people are unemployed, so it becomes even harder to get one of the few jobs that are left.''
U.S., Asia Pessimism
In the U.S., confidence among consumers also fell to the lowest in more than nine years in March, a University of Michigan survey showed last week. U.S. orders for durable goods dropped in every category during February except defense equipment. South Korean consumer confidence is at a 1 1/2-year low and pessimism among shoppers in Tokyo increased for 16th month in February. Stocks and bond yields fell on concern the war in Iraq will last months. The Dow Jones Stoxx 50 Index, which has lost more than two-fifths of its value in the past year, dropped 3.2 percent to 2111.24 points at 12:33 p.m. in Frankfurt. The yield on the German 4 1/2 percent January 2013 bund slipped 6 basis points to 4.07 percent. A basis point is 0.01 percentage point. The euro region's economy, which was struggling before the war began, won't expand more than 1 percent this year and may contract in the first quarter, the commission said. In November, the European Union's executive branch was still predicting growth of 1.8 percent in 2003. Unemployment is the highest in almost three years.
`Abnormal Situation'
``This is a very abnormal situation,'' said Gucci Group NV Chief Executive Officer Domenico De Sole in an interview last week. ``The part of the business coming from tourism has completely disappeared in the last few weeks.'' A separate survey of 25,000 companies showed their confidence declined for a third month, to minus 12 from minus 11. That series reached a low of minus 31 in August 1993 and a high of 7 in May 2000. Concern about disruption to oil supplies is boosting oil prices, stifling confidence and boosting inflation. Crude oil in London climbed 8.2 percent last week. The inflation rate in March was unchanged at 2.4 percent from February, the EU's statistical office said in an initial estimate based on inflation figures from Germany, Italy and Belgium and the latest oil prices. Still, inflation pressures are subsiding, according to statistics that exclude energy and food prices, freeing the ECB to act to boost the flagging economy. The euro's 23 percent appreciation against the dollar over the last 12 months is offsetting some of the effect of rising oil prices.
ECB Ready to Act
The ECB has said it's ready to act should it be needed, though policy makers have dampened speculation that they will lower borrowing costs as early as this week. At least half the ECB's 18 rate setters, including Chief Economist Otmar Issing and Austria's Klaus Liebscher, have signaled in the past week that they need more time to assess the war's impact. The ECB on March 6 pared borrowing costs to a 3 1/2-year low of 2.5 percent from 2.75 percent. Twenty-two of 24 analysts surveyed by Bloomberg News expect the ECB to keep the cost of money unchanged when policy makers meet in Rome on Thursday. Investors expect a reduction before the end of the second quarter, interest rate futures trading shows. The rate on a three-month euro deposit maturing in June was 2.32 percent at 11:21 a.m. in Frankfurt, compared with a money market rate of 2.52 percent.
``These are turbulent times,'' said David Hoare, executive chairman of Brussels-based carrier Virgin Express Holdings Plc. ``We have to be very cautious.'' Metro Group, Europe's third-largest retailer, said last week that earnings this year may grow at the weakest pace since 1999. Thomson SA, the world's No. 4 consumer electronics maker, and PSA Peugeot Citroen, Europe's second-biggest carmaker, have said the year will be ``difficult.'' ``We had thought we'd reached the bottom but perhaps we have to wait longer before we get an upturn,'' Gernot Nerb, an economist at the Munich-based Ifo economic research institute, said in an interview. //www.quote.bloomberg.com