More bad news for European economies

Mon Jul 28, 2008 3:31pm BST
 
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By Dave Graham and Andrew Hay

BERLIN/MADRID (Reuters) - Europe was hit by another wave of bad economic news on Monday, with surveys showing German consumer confidence worse than at any time since recession last struck and yet more house price falls in Spain and Britain.

Economists said high food and fuel costs were hurting German morale more than pay rises were helping it, compounding the risk that domestic demand would fail to compensate for weaker foreign demand for German goods as downturn hits other countries too.

While world oil prices eased in recent days, they are still roughly 40 percent higher than at the end of last year.

Market research company GfK said German consumer confidence, which it measures in monthly surveys of 2,000 people, dropped to its lowest since June 2003, when the gross domestic product of Europe's largest economy last shrank for a brief period.

"German consumers are increasingly becoming depressed," said Carsten Brzeski, an economist at Dutch bank ING.

The forward-looking GfK consumer sentiment indicator fell for a third month running, to 2.1 for August from a downwardly revised 3.6 in July.

"With inflation eroding households' purchasing power, a substantial recovery in consumer spending has now become very unlikely," said Martin Lueck, economist at UBS.

That followed news last week that German business confidence as measured by the Ifo index registered its biggest fall in July since the September 11, 2001 attacks on the United States and bigger slides than anticipated too in France and Italy.  Continued...

 
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