Business and consumer confidence in the 15 nations that share the euro fell to a 15-year low in October, the European Commission said Thursday, as a credit crunch hits consumer spending and forces companies to shed jobs. The data show that the euro area risks a recession and adds pressure on the European Central Bank to reduce borrowing costs again when it meets next week - and on European governments to do more to ward off a long economic downturn. The survey said that shoppers are far more worried about the economy - meaning they are even less likely to spend heavily in coming months as they fear losing their jobs. Consumer confidence hit its lowest level since 1993. Industry and construction also dropped but still remain above their worst-ever level recorded during the early 1990s downturn. The EU's economic sentiment indicator for the euro area fell to 80.4 in October from 87.5 a month earlier. It measures confidence among consumers and among several business sectors: industry, services, retail and construction. Consumers across the 27-nation European Union expect unemployment to increase, the EU executive said. Industry and services managers also expect to employ fewer people while industry and construction companies said they saw sales prices falling. Consumers see prices falling over the next year - as inflation creeps back from record highs over the summer, it said. They said they believed their own financial situation would worsen over the next year and said they were less likely to make major purchases such as a new home or car in the near future. A separate EU survey of industry managers also dropped significantly in October to minus 1.34 from minus 0.82 in September. This is the lowest level since 2001. The European Commission said this suggests that industrial activity remains subdued. It said the managers were far more pessimistic about future output, total orders and export orders. UniCredit economist Aurelio Maccario said the ECB now “needs to cut rates soon and by a large amount to prevent the overall economy contracting severely in 2009.” He predicts they will reduce interest rates from 3.75 percent to 3.25 percent on Nov. 6 and cut them down to 2.75 percent in December. Gilles Moec, an economist at Bank of America, warned that rate cuts were not enough because banks are not passing them on to companies and consumers. Other measures to unclog the frozen money market were “crucial,” he said, and more important than rates or a stimulus program. The ECB has pumped many billions of euros (dollars) into credit markets to help lenders get the money they can't find from other banks. Most EU governments have also tried to soothe the banking sector with wide banking guarantees and capital increases for troubled banks.
