European consumer confidence falls for seventh month in a row

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The Independent Online

European consumer confidence has fallen to a near two-year low, according to the European Union's official statistics agency, Eurostat. The Economic Sentiment Index fell in December for the seventh month in a row, although by less than most analysts feared and only slightly compared with previous drops.

Consumer and industrial sentiment fell, while there was a small increase in morale in the service sector.

The data covers those EU nations that form the eurozone bloc. The most strikingly fragile is Spain, where consumer sentiment is the weakest since early 1994, as the housing boom there has shuddered to a halt.

Despite the continuing weakness in sentiment, most economists were relieved that, with the strong euro damaging exporters and some continental banks badly affected by the credit squeeze, things weren't worse. Astrid Schilo of HSBC commented: "The economy is slowing, but not yet falling off the cliff. Current economic indicator readings point to GDP growth a bit above 2.0 per cent, which is relatively optimistic."

Evidence that European unemployment remains comparatively low and stable was also welcomed. Unemployment in France, which had been for years a notoriously stubborn problem and the source of much social tension, is running at 7.9 per cent, a 24-year low. The eurozone's unemployment rate was unchanged at 7.2 per cent in November the lowest level since the eurozone was formed in 1999.

However, European households are worried about prices. Expectations remain high and this makes a cut in European interest rates from their current 4 per cent unlikely when the European Central bank announces its decision on Thursday.

The president of the ECB, Jean-Claude Trichet, said after a meeting of G-10 central bankers that they were "very satisfied" with their efforts to calm money markets. M. Trichet and the US Federal Reserve chairman, Ben Bernanke, led an effort last month to supply more cash to money markets. The cost of borrowing euros for three months has fallen to 4.63 per cent this week from a seven-year high of 4.95 per cent on 17 December.

M. Trichet added that the spike in oil, food and other commodity prices poses risks for inflation. There was a "danger of second-round effects"' in some economies, and the risk of inflation "spiralling" was considered "an important risk".

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