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European Confidence Drops Most Since Sept. 11 Attacks

Fergal O’Brien
Bloomberg [1]
Wednesday, July 30, 2008

Europeans’ confidence in the outlook for the economy dropped the most since the Sept. 11 terrorist attacks as soaring energy costs and the euro’s advance against the dollar rattled consumers and executives.

An index measuring sentiment in the euro area fell 5.3 points to 89.5 this month, the European Commission in Brussels said today. That is more than economists had forecast and the biggest slide since a 6.3 drop in October 2001, the month after the attacks in the U.S.

Rising commodity prices have boosted inflation across Europe, sapping consumers’ purchasing power and pushing up companies’ costs. That is adding to pressure on the economy as the global turmoil in credit markets restricts access to capital. It also may limit the European Central Bank’s scope to increase interest rates to fight inflation.

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“For July, the indicators that we have had were pretty weak, so it’s likely to be a weak third quarter as well,” said Astrid Schilo in an interview on Bloomberg Television, noting that economic growth was probably flat in the second quarter. “We still expect another interest-rate rise. Obviously, with weaker numbers, that risk goes down, but it hasn’t gone away.”

Economists had forecast that the confidence index would decline to 93, according to the median of 30 estimates in a Bloomberg News survey. A separate report today showed retail sales declined for a second month in July.

Full article here [1]