French jobless ranks grew at the fastest pace in more than five years in July while Italian and Spanish factories cut prices, further signs economic growth has stalled in Europe. Finland's economy slipped into recession.
Paris, Aug. 31 (Bloomberg)
The reports fuel expectations the European Central Bank will pare interest rates again after lowering its benchmark interest rate a quarter point to 4.25 percent yesterday. ECB President Wim Duisenberg said the U.S. economic slowdown is worse than expected and predicted inflation will slow.
``The ECB will have to cut rates further,'' said Jean-Paul Cheve, who manages about 2.3 billion euros ($2.1 billion) in bonds at Cardif Asset Management in Paris.
French unemployment rose by 57,000 to 2.37 million, the Labor Ministry said. Economists had expected a rise of 10,000. Italian factories, farms and mines charged 0.4 percent less in July than in the previous month. Their Spanish counterparts pared prices 0.2 percent.
Finland's economy shrank for a fifth month in June as companies such as Nokia Oyj, the world's largest mobile phone maker, and Stora Enso Oyj, Europe's biggest paper company, sell fewer of their products to customers overseas.
``We are now in a recession and there's no way of denying it,'' said Arto Kokkinen, a statistician at Statistics Finland.
The U.S. economy -- destination for about 14 percent of Europe's exports -- expanded at the slowest pace in more than eight years in the second quarter. The German economy, Europe's largest, stalled for the first time in two years in the second quarter. The Italian and Belgian economies shrank.
`Year is a Write-Off'
Bonds rose after the figures were released. The yield on the two-year French note dropped 4 basis points to 3.88 percent. The implied yield on the three-month Euribor interest rate futures contract maturing in December fell 1 basis point to 3.86 percent, 39 basis points below the ECB's benchmark rate.
The Dow Jones Europe Stoxx 50 Index fell 0.4 percent to 3604.19 points as slowing economic growth increased concern profits will be eroded. The index has lost 8.3 percent in August.
``This year is a write-off,'' said Eric Delevaque, chief executive of HighWave Optical Technologies SA, a maker of optical components, which said in June it would fire at least 500 employees -- more than half its workforce.
France Telecom SA and Sonera Oyj last week said they will cut a total of 4,000 workers as the dominant phone companies in France and Finland struggle to return to profit.
Job Losses
Since the beginning of the second quarter, companies in the dozen nations sharing the euro said they plan to eliminate at least 114,427 jobs. Alcatel SA, Infineon Technologies AG, ABB Ltd., Danone SA, Marks & Spencer Plc, Magneti Marelli SpA and Moulinex SA have said they intend to pare staff in France.
Celanese AG shares fell as much as 28 percent after the German specialty chemicals maker forecast a full-year loss, citing slowing demand in Europe and the U.S. The company also plans to eliminate 850 jobs.
The ECB had kept rates on hold because inflation in the dozen nations that share the euro exceeded its 2 percent ceiling for 14 months. The central bank's sole mandate is to ensure stable prices, unlike the U.S. Federal Reserve, which also has a mandate to boost employment.
The ECB has trimmed borrowing costs just twice this year, compared with four reductions by the Bank of England and seven by the U.S. Federal Reserve.
Yesterday's reduction was only the third since the ECB began setting rates for 300 million people a region from Lisbon to Helsinki in January 1999. The previous was by a quarter point on May 10.
`Past the Peak'
Falling oil prices have helped cool producer- and consumer- price inflation across Europe. In June and July, crude oil prices dropped about 15 percent, pushing down the cost of gasoline, heating fuel and other petroleum products.
``We are past the peak in inflation,'' Ernst Welteke, president of the Bundesbank and one of 18 ECB policy makers, said at a press conference in Berlin today.
``We took the decision to cut without risks,'' ECB council member Eugenio Domingo Solans said at a conference in Santander, Spain. ``Inflation in the euro zone will improve next year.''
Inflation in the 12 euro countries slowed to 2.8 percent in July from 3.4 percent in May. Reports from Germany and Italy indicate it eased again in August. Falling factory prices in Germany, Italy, Spain and Portugal suggest the inflation rate will fall further in coming months.
``I'm quite confident that inflation will come down in the next few months,'' Carmelo Ammassari, chief executive of Italian software company Geyser3, said in an interview.
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