April decline signals 'worsening situation' in region, economists say

Economic confidence in the eurozone declined in April as the region's slump showed signs of deepening.

An index of executive and consumer sentiment in the 17-nation eurozone fell to 92.8 from a revised 94.5 in March, the European Commission in Brussels said on Thursday.

Europe's economy is faltering as spending cuts across the region undermine hiring and consumer confidence. Deutsche Bank AG, Germany's largest bank, on Thursday reported a 33 percent drop in its first-quarter profit and PSA Peugeot Citroen, Europe's second-biggest carmaker, said on Wednesday that the European market was "weaker than expected" in the year's first three months.

"The situation is worsening again," said Christoph Weil, a senior economist at Commerzbank AG in Frankfurt. "Periphery countries are behind budget targets with their economies deep in recession. It's a cocktail that doesn't bode well for the future and investors remain worried."

The euro pared gains after the report was released, trading at $1.3235 at 11:03 am in Brussels, up 0.1 percent.

'Very high' uncertainty

Economists forecast the eurozone economy probably continued to shrink in the first quarter after contracting 0.3 percent in the previous three months. The region's manufacturing industry contracted for a ninth straight month in April, unemployment rose to 10.8 percent in February and industrial orders declined that month.

A gauge of sentiment among European manufacturers dropped to minus 9 from minus 7.1 in March, Thursday's report showed. An indicator of services confidence slipped to minus 2.4 from minus 0.3, while a gauge of consumer sentiment slumped to minus 19.9 from minus 19.1. Sentiment in the construction industry also declined this month.

Uncertainty remains "very, very high", European Central Bank President Mario Draghi said on Wednesday. Risks to the economic outlook are on the downside, he said.

While governments from Ireland to Spain have toughened austerity measures to contain the fiscal crisis, investors remain unconvinced. Spanish 10-year yields breached 6 percent last week and the cost of insuring the country's bonds against default advanced to a record.

The crisis is also hurting companies. Deutsche Bank said first-quarter net income dropped to 1.38 billion euros ($1.82 billion). Alcatel-Lucent SA, France's largest telecommunications equipment supplier, on Thursday reported a first-quarter operating loss on declining European demand.

A gauge of eurozone manufacturers' production expectations fell to minus 1.5 from 1.5 in March, Thursday's report showed.

An indicator of order books slipped to minus 19.4 from minus 16.8 and a measure of employment expectations declined to minus 4.7 from minus 3.9.

An indicator of consumers' financial situation over the coming 12 months fell to minus 10.5 from minus 9.4, and an indicator of price developments rose to 27 from 24.

Bloomberg News in Zurich

(China Daily 04/27/2012 page17)