World Economy: Frankfurt institute could fill further European growth

Jul 30, 2008

Frankfurt institute could fill further European growth

The alarming signals accumulate for growth in the euro zone, with the announcement Wednesday of the strongest monthly decline of economic confidence since October 2001, just after the attacks on the World Trade Center, and a new record inflation which seems to be profiler.

The index of economic confidence, which summarizes the views of entrepreneurs and consumers, lost 5.3 points compared to June, 89.5 points, according to a survey published by the European Commission.

This is its lowest level since March 2003, slightly more than five years, and a decline stronger than expected: analysts surveyed by Dow Jones Newswires tablaient averaged over an index to 93 points.

To explain this "horrendous" loss of confidence, further evidence of the slowdown of the European economy, Howard Archer, economist at Global Insight, cites rising rates of the European Central Bank (ECB) last month, which gave credit more expensive, and fears of a new tightening of monetary policy.

The confidence fell in July in all sectors, but the decline is "particularly pronounced in services," notes the Commission.

His investigation revealed "significant decline" in Italy (-9.6 points on a month) and Britain (-7.2 points) and to a lesser extent, France (-4.7 points) , Germany (-4.2 points) and the Netherlands (-3.9 points).

According to another survey by the Commission, the sentiment index of business, measuring the confidence of industrialists only, also declined to -0.21 point against 0.13 point in June.

"The euro area economy has fallen into a semi-stagnation. The risk of a recession before the end of the year is more significant," warned Holger Schmieding, an analyst at Bank of America.

The oil price and strong euro, the turbulence in financial markets and the U.S. slowdown are felt, with several poor indicators recently.

In Belgium, generally regarded as very representative of the European trend, growth has slowed in the second quarter to 0.3% after 0.5% in the first quarter, according to data published Wednesday by the National Central Bank, BNB.

Aggravating factor, inflation, already at a record level in June since the establishment of the zone to 4% over a year, could accelerate in July, to see the figures published by some countries.

Also in Belgium, inflation in July reached its highest level for 24 years, to 5.91% on a year after 5.80% in June, announced Wednesday the Belgian Ministry of Economy.

And in the first euro-area economy, Germany, inflation has remained in July to its highest level in nearly 15 years at 3.3% over a year, according to a preliminary estimate based on several states Tuesday regional.

The first estimate of inflation in July for the whole euro area will be known on Thursday. Economists surveyed by Dow Jones Newswires expect a new record since the inception of the euro zone in 1999 to 4.2% in one year.

What put in a delicate position the ECB, which aims theoretically inflation slightly below 2%. But even using weapons of rising rates in an attempt to curb rising prices, the Frankfurt institute could fill further European growth.

World Economy

Frankfurt institute could fill further European growth

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