European confidence in the economic outlook fell to the lowest in more than two years and unemployment remained at a 13-year high as the euro area’s leaders struggled to contain a worsening fiscal crisis.
An index of executive and consumer sentiment in the 17- nation euro area fell to 93.3 in December from a revised 93.8 in the previous month, the European Commission in Brussels said on Friday. That’s in line with the median of 19 economists’ estimates in a Bloomberg survey. The unemployment rate held at 10.3 per cent in November, a separate report showed.
French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet on January 9 to discuss Europe’s new fiscal pact as they battle an intensifying debt crisis in the euro area. As governments tighten austerity measures amid high unemployment, households and businesses are more reluctant to spend and the prospect of a recession looms.
“Confidence has been ebbing away for some time now and there’s no reason to suppose economic confidence is going to turn up any time soon,” Peter Dixon, an economist at Commerzbank AG in London, said before the release of on Friday’s report. “Depending on how deep the recession ends up being we could see further dramatic declines.”
Luxembourg Prime Minister Jean-Claude Juncker said on January 4 that the EU is on the brink of a recession of unknown scope. The European Central Bank forecasts that the region’s economy will expand 0.3 per cent in 2012, while the European Commission sees growth at 0.5 per cent.
The euro is headed for a fifth weekly loss against the dollar.
The single currency fell to $1.2764, the lowest since September 2010, before recovering to $1.2799 at 10.34 am in Brussels, up 0.1 per cent on the day.
The gloomy economic indicators in Europe followed the news from Asia that Japan’s recovery from the aftermath of a record earthquake was probably cut short in the fourth quarter as the impact of the euro-area fiscal crisis outweighed the support from reconstruction spending.
Gross domestic product probably shrank in October and November, pointing to a 0.1 per cent contraction for the quarter, according to calculations by the Japan Center for Economic Research, an independent analysis group in Tokyo. A third contraction in four quarters would widen Japan’s gap with China.
U.S. Payrolls
This contrasted with the U.S., where hiring probably accelerated in December for a second month, pointing to a strengthening labor market heading into 2012, economists said before a report later on Friday.
Payrolls climbed by 155,000 workers after rising 120,000 the previous month, according to the median forecast of 84 economists surveyed by Bloomberg News. The unemployment rate rose after dropping in November to the lowest level in more than two years, the report may also show.
A gauge of sentiment among European manufacturers held at minus 7.1 in December, on Friday’s report showed. An indicator of services confidence fell to minus 2.1 from minus 1.6, while a measure of consumer confidence dipped to minus 21.1 from minus 20.4, the commission said.
The ECB in December cut its key interest rate for a second consecutive month and offered unlimited three-year cash at 1 percent to persuade banks to keep providing credit to the region. ECB council members will hold their next rate meeting on Jan. 12 in Frankfurt.
Retail Sales
Companies are already moving to eliminate jobs as a drop in global demand hurts orders. European industrial orders increased less than economists estimated in October, a report showed yesterday.
Credit Agricole SA, France’s second-largest bank by assets, said last month it will report a loss for 2011 and eliminate 2,350 jobs at its investment-banking and consumer-finance units.
A separate report on Friday showed retail sales down 0.8 percent in November, the European Union’s statistics office in Luxembourg said on Friday. Economists had forecast a drop of 0.4 percent, the median of 13 estimates in a Bloomberg News survey showed.
“The consumer is clearly going to remain under pressure” said Dixon at Commerzbank. “ People aren’t spending and trade is drying up. It’s a pretty dismal outlook.”
With assistance from Timothy R. Homan in Washington, Aki Ito in Tokyo and Mark Evans in London. Editors: Patrick Henry, Jones Hayden
