European consumer and business confidence slumped to a record low in January in the face of recession, but the drop was not as sharp as expected, according to a widely watched EU survey. While some economists saw the slowing pace of decline as a sign that the drop in economic activity may be stabilising, others stressed that the new record low indicated that Europe is not yet out of the woods.
The European Commission's economic sentiment indicator for the 16 countries sharing the euro fell to 68.9 points in January from 70.4 points in December, hitting the lowest level since the survey began in January 1985. The slump, which was less sharp than the declines seen in recent months, was also not as deep as economists had expected, with their forecasts anticipating a drop to 64.9 points, as polled by Dow Jones Newswires.
"The further deterioration in economic sentiment in January bodes ill for investment, employment and consumer spending across the eurozone," economist Howard Archer at consultants IHS Global Insight said. "The region is likely to see further marked contraction in the first half of the year at least," he added.
Meanwhile, the commission's indicator for the 27-nation European Union fell to 64.9 points from 68.2 points, also tumbling to a record low. The slump in confidence was broad based, showing up in most EU countries and in all sectors except for the retail industry, where sentiment was stable, according to the survey.
The EU's executive arm's separate monthly business climate indicator for the eurozone plunged to the lowest level on records going back to January 1985, dropping to a negative 3.16 points in January from a negative 3.09 in December. While the drop in European confidence was not as bad as feared, it remains at levels that suggest that Europe has slumped into a deep recession.
In further evidence of the tough times, the jobless tally in Germany - Europe's biggest economy - jumped 387,000 in January to almost 3.5 million, according to official figures on Thursday. However, in rare rays of light, some recent business surveys and consumer surveys in Germany and France have shown marginal improvements, fuelling hopes that the recession may have hit bottom.
"January's fall in economic sentiment to a new record low is a disappointment after slight increases in other survey measures," said Jennifer McKeown at consultants Capital Economics. Archer said that the record low level of consumer and business confidence would "reinforce the already strong case for another ECB interest rate cut," even though the European Central Bank has hinted there would be no further decrease until March.
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