Italian consumer confidence probably fell this month and French shoppers kept a rein on spending in June as unemployment prevented an economic recovery in the euro region from gaining pace, surveys of economists showed. An index of Italian confidence may have slipped to 99.5 in July from 99.9 a month earlier, according to the median of 19 economist forecasts in a Bloomberg News survey. French spending probably rose 0.4 percent in June, the smallest gain in five months, from May and German investors' confidence may have dropped for the seventh month in eight in July, separate surveys showed. Euro region growth is being driven by U.S., Chinese and Eastern European demand as companies including KarstadtQuelle AG, Germany's largest department store operator, cut jobs, keeping unemployment at a five-year high and prompting consumers to save rather than spend. The International Monetary Fund forecasts that the economy will expand at less than half the U.S. rate this year.
``We need to wait for a recovery in employment to support incomes and consumption,'' said Lorenzo Codogno, an economist at Banc of America Securities LLC, who expects a ``weak'' job market rebound in 2005. ``We will continue to see an unexciting recovery, but a recovery nonetheless'' in the euro-region. France's statistics office, Insee, will release the spending report on Thursday and the Rome-based Isae institute publishes its Italian consumer confidence release a day earlier. Germany's ZEW Center for European Economic Research publishes its monthly report on investor confidence tomorrow. Saving More At 9 percent, unemployment in the euro region is the highest since 1999. KarstadtQuelle said earlier this month it will shed 4,000 jobs by 2006 to respond to falling demand. In France, manufacturers such as Nestle SA have shed 236,300 jobs since the first quarter of 2001 to boost profit. Concern about job prospects is causing some consumers to save money, restraining the pace of growth. Between 2000 and 2003, the savings rate rose to 10.7 percent in Germany, from 9.8 percent, and to 15.1 percent from 14.4 percent in Italy. ``Consumption has to accelerate if the recovery is to move up another gear,'' said Michael Dicks, chief European economist at Lehman Brothers Holdings Inc. in London. Growth in the euro region will reach 1.7 percent this year compared with 4.6 percent in the U.S. and 3.4 percent in Japan, the IMF forecasts. The European Commission, the European Union's executive arm, on Thursday lowered its third-quarter growth forecast for the euro region, suggesting consumer spending has failed to strengthen as much as it anticipated. The European Central Bank has left interest rates unchanged for more than a year to nurture the economic recovery. The U.S. Federal Reserve raised interest rates for the first time in four years on June 30.
Workweek Dispute
For now, foreign demand is propelling euro-region growth. Exports from Germany, the region's largest economy, gained for the sixth month in seven in May. Royal Philips Electronics NV, Europe's largest consumer-electronics maker, said last week global demand helped its semiconductor unit return to profit in the second quarter. Infineon Technologies AG, Germany's biggest chipmaker, reports fiscal third-quarter earnings tomorrow. In Germany, the most protracted economic slump since World War II has emboldened companies to seek longer hours from workers without additional pay. Economists including Elga Bartsch at Morgan Stanley and Juergen Michels at Citigroup Inc. said in research reports this month that longer working hours will help boost economic growth and close the gap with the U.S.
DaimlerChrysler Talks
Siemens AG, Germany's largest electronics and engineering company, last month extracted an agreement from unions at two German phone factories to lengthen the work week without additional pay. DaimlerChrysler AG has told workers at two Mercedes plants in southern Germany that they must agree to cost reductions or face the loss of 6,000 jobs. DaimlerChrysler executives will meet with the company's works council tomorrow and Wednesday and Chief Executive Officer Juergen Schrempp told Die Welt newspaper he expects an agreement ``shortly,'' according to Saturday's edition. Schrempp and board members are also prepared to ``make a contribution'' if workers agree to proposed cost cuts, spokesman Thomas Froehlich said yesterday. The disagreement has hurt production of some 2,800 cars, the IG Metall union estimates. MAN AG, Europe's third-biggest truckmaker, is also seeking a return to the 40-hour work week without extra pay.
Retail Sales
Germany, Europe's biggest economy, was reliant on exports for growth in the first three months of this year as consumer spending failed to increase for a fourth quarter. Retail sales in May had their biggest drop since November. The lack of consumer demand has reduced executive and investor confidence in the prospects of a recovery. The ZEW index probably slipped to 47 in July from 47.4 last month, according to the median of 38 economists in a Bloomberg News survey. Consumers and investors won't be able to rely on the ECB to cut rates to help revive their appetite for increased spending, futures trading suggests. While yields on December Euribor interest-rate futures contracts have dropped 19 basis points in the past four weeks to 2.28 percent in Frankfurt, that compares with the ECB's benchmark lending rate of 2 percent. The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the euro's launch in 1999. ///www.bloomberg.com