By Simone Meier Feb. 25 (Bloomberg) -- European confidence in the economic outlook unexpectedly worsened in February after the euro region’s recovery almost stalled in the fourth quarter. An index of executive and consumer sentiment in the 16 nations using the euro slipped to 95.9 from a revised 96 in January, the European Commission in Brussels said today. Economists projected an increase to 96.4 from a previously reported January reading of 95.7, according to the median of 25 forecasts in a Bloomberg News survey. The euro-area economy may struggle to gather strength after growing just 0.1 percent in the fourth quarter as companies continue to cut jobs, discouraging consumer spending. While European governments are seeking to bolster a recovery, they also are trying to stem investor concern about budget deficits in Greece and other nations, which is pushing the euro lower versus the dollar. “Arguably the best days of recovery are behind,” said James Nixon, co-chief European economist at Societe Generale SA in London. “The recovery is going to be characterized by extraordinarily weak consumer demand. We’re still looking at positive growth figures, but they won’t be very big.” The euro declined against the dollar after the data, trading at $1.3509 at 10:19 a.m. in London, down 0.2 percent on the day. The yield on the German 10-year benchmark bond fell 0.2 basis point to 3.11 percent. IMF Forecast Europe’s economy may grow 1.6 percent this year, lagging behind a global expansion of 3.9 percent, the International Monetary Fund said last month. The U.S. economy, the world’s largest, will probably expand 2.4 percent in 2010, the Washington-based IMF forecast. A recovery is already losing some momentum as governments phase out stimulus measures just as rising unemployment and surging energy costs erode households’ willingness to spend. Growth in Europe’s service industry weakened in February and consumers grew more pessimistic. In France, Europe’s third- largest economy, consumer confidence unexpectedly fell in February, the national statistics office said today. European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo told Dublin-based Newstalk radio in an interview broadcast last night that the euro-area economy will show “some uneven behavior” while “big uncertainty” remains. Bank of England Governor Mervyn King said on Feb. 23 that the euro region “appears to have stalled,” threatening U.K. exports. Economic Expansion Loans to households and companies in Europe declined in January from a year earlier after the economic expansion curbed demand for credit, the ECB said today. Unemployment in Germany, the region’s largest economy, increased for a second month in February, separate data showed. Lars Olofsson, chief executive officer of Carrefour SA, said on Feb. 19 that he doesn’t “see any change in the European environment for the next six months at least” after Europe’s largest retailer reported a 70 percent drop in full-year profit. The Dow Jones Stoxx 50 Index of European companies has dropped 8.1 percent this year and Germany’s benchmark DAX index has lost 5.8 percent. The euro has fallen 10.9 percent against the dollar over the past three months on investor concern that a Greek debt crisis may spread across the region. Moody’s Investors Service may lower its Greek debt rating within months unless the government manages to push down the European Union’s largest shortfall, Pierre Cailleteau, managing director of sovereign risk said today in an interview. Standard & Poor’s said yesterday that it may also lower its Greek rating. ‘Must Be Credible’ “Greece must be credible toward markets,” Otmar Issing, the ECB’s former chief economist, said in an interview on Feb. 24. “Then, speculation on Greece’s fall will end.” A 3.2 percent surge in oil prices over the past three months is adding to pressure on companies’ profit margins by making raw materials more expensive. M3 money supply, which the ECB uses as a gauge of future inflation, rose an annual 0.1 percent in January after declining in December. A gauge of consumers’ price expectations over the next 12 months rose to zero in February from minus 2 in the previous month, today’s report showed. That’s the highest since March 2009. An indicator measuring households’ assessment of the economic outlook dropped to minus 12 from minus 9 in January. Companies across Europe are already seeking ways to expand in faster-growing economies to help boost sales. Paris-based Pernod Ricard SA, the world’s second-largest liquor maker, said on Feb. 18 that sales from China will shortly overtake those in Spain, and emerging markets such as Russia are “starting to turn around.” Emerging Markets Schneider Electric SA, the world’s largest maker of circuit breakers, on Feb. 18 forecast a rebound in sales this year led by emerging markets such as China and India. Markets such as Europe remain “uncertain,” Schneider Chief Executive Officer Jean-Pascal Tricoire said on that day. “The start of 2010 has been very positive and confirms our positive assessment of business development for the year,” Elmar Degenhart, CEO of Continental AG, Europe’s second-biggest auto-parts maker, said on Feb. 23. Rising exports helped pull the euro-area economy out of its worst economic slump in more than six decades in the third quarter as households held back spending. The European Union’s statistics office will release a breakdown of fourth-quarter gross domestic product on March 4. “We believe that a healthy global expansion is under way,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “But it will take time to reduce economic slack and repair damaged balance sheets.” The ECB earlier this month kept borrowing costs at a record low of 1 percent to bolster a recovery. The Frankfurt-based central bank next month will decide on a further “gradual” phasing-out of emergency measures introduced to fight the crisis, ECB council member George Provopoulos said. “We will continue to monitor very closely all developments over the period ahead,” he said in an interview on Feb. 19. “The situation is showing signs of normalizing, but we have not yet reached the end of the road.” To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

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