July 30, 2012

Eurozone Confidence Falls Again

Index hits lowest level in three years as gloom spreads to Asia

A worker in a Siemens plant in Germany, where business confidence hit a two-year low. (Photo: AP) A worker in a Siemens plant in Germany, where business confidence hit a two-year low. (Photo: AP)

Economic confidence throughout the eurozone fell once more in July, reaching its lowest level since September 2009, and business confidence also headed lower for the fifth straight month as the eurozone crisis dragged on.

The effects did not leave Asia untouched, weakening the manufacturing industry; in Japan, industrial output dropped and in South Korea, manufacturers’ confidence hit a three-year low.

Bloomberg reported Monday that the European Commission (EC) said an index of executive and consumer sentiment in the eurozone fell from June’s level of 89.9 to 87.9, the lowest it has been in almost three years. Economists polled by Bloomberg had expected less of a decline, predicting a median fall to 88.9.

Euro area manufacturing output and services both declined in July, making it likely that the region will be in for a third quarter of contraction. All the belt-tightening by governments seeking to cut deficits is pushing the region’s economy toward its second recession in four years. Even German business confidence took a hit in July, reaching its lowest level in more than two years.

Howard Archer, chief European economist at IHS Global Insight, has estimated Q2 economic contraction in the eurozone at 0.3%. “It appears that the eurozone is headed for further clear gross domestic product contraction in the third quarter,” he said in the report, adding that the weakness “piles yet more pressure on the ECB to come up with concrete measures at its policy meeting” on Aug. 2.

European manufacturer sentiment dropped to a negative 15; in June, according to the report, it had been at a negative 12.8. Construction confidence was also lower than it was in June. Both services confidence and consumer sentiment dropped as well, the former to a negative 8.5 from a negative 7.4 and the latter to a negative 21.5 from a negative 19.8.

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