SHARP FALLS in business confidence were reported across continental Europe yesterday as global economic storms drove the euro zone towards recession, adding pressure on the European Central Bank (ECB) to consider rate cuts.
Germany, France and Italy reported the business mood had darkened markedly this month, with Germany's Ifo institute reporting industry expectations for the next six months were the most pessimistic since early 1993.
With business confidence surveys seen as a good guide to trends in activity, the deterioration provided fresh evidence that euro-zone economic data for the last three months will show a second quarterly contraction - constituting a technical recession.
Confidence had been knocked by the global slowdown, which was hitting euro-zone exports, analysts said. But direct effects on the real economy of recent financial market turmoil could add to the pressure. Lower oil prices had brought little relief.
Oil prices rose yesterday after US government data provided evidence of the disruption caused by recent hurricanes that forced the closure of just under one-third of the entire US refining system.
Nymex November West Texas Intermediate rose $1.19 to $107.80 a barrel after touching a session high of $109.50, while ICE November Brent increased $1.26 to $104.34 a barrel.
Gilles Moec, European economist at Bank of America, argued the gloomy outlook meant policy hawks at the ECB were "running out of arguments to resist calls for rate cuts".
With the global slowdown spreading into Asia, ECB policymaker comments have appeared more cautious recently about the euro-zone growth outlook.
But Mr Moec expected the central bank would change its tough rhetoric only "cautiously and gradually".
As recently as July, the ECB raised its main interest rate by a quarter percentage point to 4.25 per cent to head off inflationary pressures. That move now appeared a mistake, argued Marco Annunziata, chief economist at Unicredit.
"It tightened monetary conditions for an economy which we can now see was already entering recession." - (Financial Times service)
