Confidence fall points to long euro recession

Tim Wallace
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A HUGE wave of bad economic data hit the Eurozone yesterday, with weak confidence, falling pay and high taxes all leading analysts to warn the recession is likely to be extraordinarily prolonged.

Confidence fell in the construction, manufacturing and services sectors, undoing all of the improvements seen so far this year.

The European Commission’s business sentiment indicator fell to minus 0.93, well below its long-term average and back to levels last seen in November 2012.

Such low confidence is feeding through into other key numbers – business investment fell 1.7 per cent compared with the previous three-month period.

And compensation for employees across the currency area also dipped 0.4 per cent on the quarter, falling to €1.2 trillion (£1 trillion).

Official figures showed taxes rising steadily since the financial crisis with tax as a share of GDP rising to 39.5 per cent in the Eurozone in 2011, up from 39 per cent in the previous year.

The trend also hit the UK, where taxes have increased from 35.4 per cent to 36.1 per cent in the same time period.

Meanwhile Spanish retail sales plunged for the 33rd consecutive month, falling 8.9 per cent in the year to March.

“April’s EC consumer and business survey supports other evidence that the Eurozone is experiencing its longest recession on record,” said Jennifer McKeown from Capital Economics.

“At this level, the index points to annual falls in GDP of around 1.5 per cent – weaker than the fourth quarter’s minus 0.9 per cent. This is consistent with quarterly falls of around 0.5 per cent in the first and second quarters.”

However, consumer price inflation in Germany fell to 1.1 per cent, its lowest level in two years, raising hopes that the European Central Bank will step in with a looser monetary policy at this week’s meeting, in an effort to boost the economies.