Consumer confidence in the 12-nation euro region probably stagnated in March, a survey of economists showed, adding to the European Central Bank's concern that growth isn't strong enough to boost household spending. An index of consumer sentiment compiled by the European Commission may have stayed at minus 14, according to the median of 30 forecasts in a Bloomberg News survey. Business confidence was probably also unchanged in March. Inflation in the euro region stayed at 1.6 percent, separate surveys showed.
ECB President Jean-Claude Trichet said last week the bank may have to lower its growth forecasts unless consumer spending, the largest part of the economy, rebounds. Trichet, who chairs a rate- setting meeting tomorrow, has scope to lower borrowing costs as inflation holds below the bank's 2 percent ceiling. ``The ECB will look very closely at this report given that they have identified consumer confidence as the key issue,'' said Thomas Mayer, chief European economist at Deutsche Bank AG in London. ``The ECB was expecting the consumer to make a big contribution to the recovery. But we have seen a disappointment, so if the ECB has to cut its forecasts that may pave the way for a rate cut.''
Deutsche Bank changed its outlook for ECB rates on Friday and now expects a quarter-point rate reduction by the end of June. The bank, Europe's second largest by assets, cited deteriorating business confidence and consumer spending.
Italy, Germany
The commission will release its report at 11 a.m. in Brussels. The consumer and business confidence report is based on a survey of about 25,000 households and a similar number of companies conducted in the first two weeks of the month. Italian consumer confidence held near a 10-year low in March as the Madrid terrorist bombings hurt sentiment more than the Sept. 11, 2001, attacks on the U.S. German consumer confidence stagnated for a second month and a government report scheduled for release on Thursday will probably show French household confidence was also unchanged, economists said. Investors increasingly expect the ECB to cut interest rates to shore up growth in the euro region, futures trading suggests. The yield for three-month interest rates for June delivery was at 1.87 percent at 9:20 a.m. in Frankfurt, compared with 2 percent at the start of the month. The three-month money market rate fell below the ECB's refinancing rate for the first time last Thursday and was at 1.96 percent today.
Calling All Consumers
The euro region's economy will grow 1.4 percent this year, falling short of the commission's projection for 1.8 percent expansion, the European Forecasting Network, a group of seven research institutes, said yesterday. Trichet is urging shoppers to spend more as the euro region's economy recovers and the euro's appreciation over the past year makes imports cheaper and keeps inflation in check. The inflation rate in the dozen euro nations fell to a four-year low of 1.6 percent in February. So far, consumers aren't listening as companies including Volkswagen AG eliminate jobs and governments curb welfare spending to meet European Union fiscal rules. KarstadtQuelle AG, Germany's largest department-store operator, said last week it expects first- quarter sales to decline as much as 5 percent.
Unemployment in the euro region last month stayed at 8.8 percent, unchanged for an 11th month, and France's jobless rate held at 9.6 percent in February, a report from the country's statistics office showed today.
Punishing Politicians
Instead of spending more, consumers are using regional and municipal elections to punish governments for failing to curb unemployment. German Chancellor Gerhard Schroeder's ruling Social Democratic Party suffered its biggest defeat since World War II in the city of Hamburg last month and French Socialists trounced Prime Minister Jean-Pierre Raffarin's ruling coalition in regional elections on Sunday. Schroeder in December became the country's first premier to cut jobless benefits and this year introduced fees for medical services such as doctors visits, dulling the effect of $19 billion of tax cuts. Raffarin has revamped France's state pension system, forcing employees to work longer for retirement benefits. Consumer confidence is stagnating just as a recovery in European manufacturing activity shows signs of faltering. German business confidence, which rose to a three-year high in January, slipped for a second month in March. Optimism among French manufacturers this month stayed at February's 34-month high.
Sentiment Gap
The commission's index of European business confidence probably stalled at minus 6 in March, according to the median of 30 forecasts in a Bloomberg News survey. Consumer spending may not recover even if business confidence rebounds in coming months. Rising executive optimism has failed to spur a pick up in household confidence since Europe's economy started recovering in the second half of 2003. The gap between the commission's consumer and business confidence indexes widened from four points to eight points between July and February.
The commission's business confidence index reached a low of minus 31 in July 1993 and a high of 6 in September 2000. Consumer confidence dropped as low as minus 29 in August 1993, and rose to as high as 3 in April 2000. ///www.bloomberg.com