Euro zone economic morale plumbed new record depths in February, data showed today, widening a picture of deep recession that is expected to prompt a further cut in interest rates by the European Central Bank.
Economic sentiment in the 16 countries using the euro fell to 65.4 points - the lowest since records began in 1985 - from a downwardly revised 67.2 points in January, the European Commission said.
Economists polled by Reuters had expected a fall to 68.5.
"These data highlights that the recession is deepening at the beginning of 2009," said economist Juergen Michels at Citigroup.
The monthly Commission survey showed inflation expectations among households fell again to 5 from 6 points and stagnated at -11 among firms.
ECB policymakers have suggested the bank may cut its rate again in March after lowering borrowing costs by a total of 225 basis points to 2 per cent as the inflation rate halved and recession deepened in the euro zone in recent months.
The ECB targets inflation just below 2 per cent.
"In terms of monetary policy, it adds to the already strong case for the ECB to cut interest rates further. We expect a 50- basis-point reduction," said Nick Kounis, analyst at Fortis.
Separately, the Conference Board's Leading Economic Index (LEI) for the euro zone inched up 0.5 percentage points in January to 92.8 following a 1.7 point fall in December.
"If sustained, the 0.5 per cent rise in the ... index may signal an inflection point in the recession, but still not a turning point," said Jean-Claude ManinI, the Conference Board's senior economist for Europe.
The euro zone economy is sinking deeper into its first ever recession, worsened by a global credit crunch which has slashed financing to companies and households, choking demand and prompting corporate belt-tightening.
The data showed various fiscal stimulus measures are still not working, analysts said.
"Despite the various stimulative measures being taken across the region and sharply lower input costs, businesses continue to fret about the domestic and global economic environment facing them," said Howard Archer, chief European economist at IHS, Global Insight.
The Commission survey showed the deterioration of optimism was strongest in the industrial sector, where the indicator hit a record low of -36 points, compared with -33 points in January.
Services, which generate more than two-thirds of the euro zone's gross domestic product, also set a record low of -23 points, from -22 in January.
Optimism among consumers fell to -33 from -31 and only the retail trade indicator inched up to -19 from -20.
In Germany, the euro zone's biggest economy, the industry, consumer and retail trade indicators fell, but they improved in the services and construction sector.
The Commission's business climate index, which points to the phase of the business cycle, worsened to -3.51 in February from an upwardly revised -3.03 points in January, marking the lowest since records started in January 1985.
Reuters