More bad news for European economies

Economists said high food and fuel costs were hurting German morale more than pay rises were helping it, compounding the risk that domestic demand would fail to compensate for weaker foreign demand for German goods as downturn hits other countries too. While world oil prices eased in recent days, they are still roughly 40% higher than at the end of last year.

Market research company GfK said German consumer confidence, which it measures in monthly surveys of 2,000 people, dropped to its lowest since June 2003, when the gross domestic product of Europe’s largest economy last shrank for a brief period. “German consumers are increasingly becoming depressed,” said Carsten Brzeski, an economist at Dutch bank ING.

The forward-looking GfK consumer sentiment indicator fell for a third month running, to 2.1 for August from a downwardly revised 3.6 in July. “With inflation eroding households’ purchasing power, a substantial recovery in consumer spending has now become very unlikely,” said Martin Lueck, economist at UBS. That followed news last week that German business confidence as measured by the Ifo index registered its biggest fall in July since the September 11, 2001 attacks on the United States and bigger slides than anticipated too in France and Italy.

 
MORE HOUSE GLOOM

Spain and Britain produced further evidence of the downturn in housing markets which hit the US before spreading to parts of Europe where building and liberal mortgage lending gave the biggest boost to the economy in recent years. Spain’s statistics office said house sales there plunged 34% year-on-year in May as households baulked at borrowing rates which have hit 8-year highs.

The pace of the decline reverted to the striking levels seen earlier in the year after a somewhat milder drop of 7.1% in April. Spanish house prices could drop by up to 30% in real terms in coming years, according to Spanish property firm Colonial and other industry executives. That is partly due to a glut of up to 1.5 million unsold homes after years of overbuilding, property firms say. House sales in May tumbled to 50,161 units and mortgage lending plummeted 40% year-on-year.

In Britain, figures from a government agency showed house prices in England and Wales fell 1.0% on the month in June. The Land Registry said house prices were just 0.1% higher than a year ago last month -- the 10th month of slowing annual price growth and underlining the slowdown in the housing market. (Reuters)