Data point to further gloom in eurozone
PARIS — The outlook for the eurozone remained unsettled Thursday, as data showed that confidence among European businesses and consumers continued to fall in September and the Spanish government prepared to unveil a plan to restore its finances next year.
The European Commission reported from Brussels that its economic sentiment indicator for the 17-nation eurozone fell by 1.1 points, to 85.0, a seventh month of decline.
The commission attributed the weakening to slipping confidence among services, retail and industrial businesses, as well as among consumers. For the broader, 27-member European Union, confidence fell by 0.9 points in September, to 86.1. The commission pointed to more optimism among construction managers in both areas as a sign for hope.
The data “serve as another warning that the eurozone economy is sinking further into recession,” Jonathan Loynes, chief European economist at Capital Economics, wrote in a note, adding that it dashed hopes that the European Central Bank’s Sept. 6 pledge “to take more decisive policy action might have improved sentiment towards the broader economy.”
Loynes said the confidence data were consistent with an annual contraction in eurozone economy of about 2.5 percent.
In Madrid on Thursday afternoon, Prime Minister Mariano Rajoy was preparing to roll out tough measures to bring the 2013 budget in line with its target — 4.5 percent of gross domestic product, from the 6.3 percent targeted for this year.
Spain, which had already received a promise of up to 100 billion euros, or $129 billion, to restructure its shaky financial sector, is hoping to avoid the type of full bailout that Ireland, Portugal and Greece have already received, and more importantly, the constraints on government action such bailouts have entailed.
With the new measures, the government in Madrid is seeking to demonstrate to its European partners that it is meeting the conditions needed to receive support from the European Stability Mechanism, the new eurozone bailout fund, according to Holger Schmieding, an economist at Berenberg Bank in London. That would open the way to aid from the European Central Bank, if necessary, Schmieding wrote in a research note.
“The Rajoy administration remains ready to do what it takes to turn Spain around,” Schmieding said, “but apparently wants to present all that it has to do as Spanish decisions, not as conditions imposed on Spain by outsiders.”
“The best possible outcome would be for Europe to endorse the Spanish budget in a way that impresses markets,” Schmieding said, as in that case, “Spain would actually not have to ask for help.”
In the bond market, the Spanish benchmark 10-year sovereign was trading at 5.90 percent, down 10 basis points. A basis point is one-hundredth of a percent.