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To: LLCF who wrote (176810)	7/2/2002 8:55:57 AM
From: Haim R. Branisteanu	Respond to of 436258

UPDATE 2-Euro zone economic sentiment worsens in June July 02, 2002 07:56 AM ET Email this article Printer friendly version (Adds details, French data, background, analysts' quotes.) By Swaha Pattanaik BRUSSELS, July 2 (Reuters) - Euro zone economic sentiment deteriorated in June, according to reports on Tuesday which cast a shadow over the prospects for economic recovery in the region. A measure of economic sentiment in the 12-state bloc fell to 99.6 in June from a revised 99.9 in May as business sentiment fell to minus 10 from minus 9 and an index of consumer morale fell to minus 9 from minus 8, the European Commission said. A separate report showed a business climate indicator for the euro zone fell to a lower-than-expected minus 0.43 in June from a revised minus 0.20 in May, the second time in seven months that the index had dipped. The weaker-than-expected figures come ahead of the European Central Bank's meeting on Thursday, reinforcing expectations interest rates will be left unchanged at 3.25 percent. "The drop in the consumer sentiment indicator is going to raise concern about the pace at which domestic demand is going to pick up and feed through into growth," said Jeremy Hawkins, chief economic adviser at Bank of America in London. "I would be very surprised if the ECB raised rates this week." Economists had expected readings of 99.8 for the overall sentiment indicator, minus 8.8 for business sentiment, and minus 8.6 for consumer sentiment. They had forecast a reading of minus 0.20 for the business climate indicator. Still, there were crumbs of comfort from revisions to past data. The headline economic sentiment index for May was revised up from the previously reported 99.8 while the business climate indicator for May had initially been put at minus 0.24. Also, the Commission said the general trend in the business climate indicator was positive and analysts said it was the pace of recovery that was in doubt, rather than its existence. "Business and consumer sentiment had got very overbuoyant before so what we are seeing is a correction consistent with a more gradual recovery," said David Brown, chief economist at Bear Stearns in London. DOWNBEAT TONE ECHOED The euro zone data on consumer sentiment reflected the more downbeat tone of national reports released recently. Earlier on Tuesday, the French national statistics office had said consumer morale in the euro zone's second largest economy unexpectedly fell in June, with the index measuring confidence dipping to minus 13 from minus 12 in May as consumers became more gloomy about their future living standards. "After a very clear recovery in morale in May, the outlook for living standards in France lost steam," the national statistics office said. Such a drop in confidence comes despite French President Jacques Chirac's promise of tax cuts and analysts said it did not bode well for household spending, which had so far been the driving force behind French economic recovery. "Apparently consumers don't believe too much in Chirac's promises of tax cuts. There's little chance of consumer spending improving in coming months," said Emmanuel Ferry, an economist at investment brokerage Exane. Layoffs announced by firms are fuelling job insecurity and weighing on consumer sentiment, analysts say, even though the official data has yet to reflect such perceptions. A report released by the European Union statistics office on Tuesday showed the euro zone jobless rate remained unchanged at 8.3 percent in May. FIRMS CAN'T HOLD FORT ON THEIR OWN Business sentiment had until recently proved more resilient than consumer morale but the latest euro zone data chimed with rising gloom among firms in the region's economic giants. Last week's report by Germany's Ifo showed that business sentiment in Europe's largest economy unexpectedly edged down to 91.3 in June from 91.6 in May. The Ifo survey, which is seen as a good growth gauge not only for Germany but for the euro zone as a whole, showed firms turned gloomier even as current trading conditions improved. And an Italian report had shown an unexpected decline in business confidence in the euro zone's largest economy. The Commission said on Tuesday the decline in its business climate indicator had been driven mainly by a worsening in the assessment of recent production trends and an increase in stocks of finished goods. It also pointed out a slight decline in order books, including in export orders. Analysts are concerned that the recent gains in the euro could make it harder for the region's exporters to sell into the United States and other overseas markets and that this could further depress orders they receive from abroad. Euro appreciation would, however, help curb inflation and allow the ECB to defer rate cuts, they said. "The stronger euro, with its proxy monetary tightening effect, the weaker sentiment in the stock markets and the recent dip in inflation means expectations for tightening are going to go off the boil," said Brown at Bear Stearns.