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Economic Mood in Euro Zone Sours Again in April

Reuters with CNBC.com
Monday, 29 Apr 2013 | 6:06 AM ET
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Confidence in the euro zone's economy fell for a second straight month in April and by more than expected, data showed on Monday, strengthening the case for a cut in interest rates this week.

Economic morale in the 17 countries using the euro slipped 1.5 percent points to 88.6, the European Commission said. Economists polled by Reuters had expected a decline to 89.3.

The disappointing data highlights the euro zone's difficult road out of recession and the souring of the mood among companies and consumers since March, after an optimistic start to the year.

Likely of most concern, the pessimism has set in even in Germany, Europe's biggest economy, where economic sentiment worsened 2.3 points. Morale also fell in France and Italy, meaning the euro zone's three largest economies are all witnessing a marked decline in the confidence that is so crucial to get the euro zone's output growing again.

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Across the euro zone, from industry to retail trade, sectors showed the falling confidence and sentiment in services fell 4.1 percentage points.

The Commission's measure of the euro zone's business cycle reflected the malaise, decreasing 0.18 points to -0.93, lower than the -0.89 level expected by economists.

Many now expect the European Central Bank to cut interest rates to lower the cost of borrowing and help improve morale.

A majority of economists expected the decision to come on Thursday for a cut of 25 basis points to take the bank's main refinancing rate to a record low of 0.5 percent, according to a Reuters poll last week.

Germany's economic resilience and reforms in southern Europe had sowed hope early this year that the bloc could pull out of recession before the end of 2013, but Cyprus' messy bailout and Italy's inconclusive February election, which failed to yield a government until late April, have weighed on confidence.

France's weak economy and public accounts are also a concern.

However, consumer confidence in the euro zone increased 1.2 points, and in Spain, sentiment improved by almost 1 point, in a sign that despite record unemployment, reforms may be helping business.

Meanwhile, Portuguese business and consumer confidence improved for the fourth consecutive month in April, the country's National Statistics Institute reported.

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