WRAPUP 1-Weak euro zone confidence, lending points to grim Q1

* Euro zone expected to grow 0.7 percent this year

* Unemployment on the rise

* Companies struggling to borrow

By Jan Strupczewski and Anna Willard

PARIS, Feb 25 (BestGrowthStock) – The European Commission left its
2010 growth outlook for the euro zone unchanged on Thursday
despite concerns about Greece and other reports painting an
increasingly grim picture.

The euro zone should squeeze out 0.7 percent growth, it said
and tweaked up its forecast for the first two quarters.

But other data showed a surprise drop in euro zone
[ID:nLCE61N256] and French confidence [ID:nPAB008194] and a
fifth consecutive fall in lending to companies across the bloc.

Unemployment is also on the rise in France and Germany,
helping fuel concerns about future job cuts that have led to a
wave of strikes around Europe.

“The eurozone recovery is clearly struggling for momentum
while underlying inflationary pressures remain muted,” said
Howard Archer, chief economist at IHS Global Insight.

The commission said it expected 0.2 percent growth from
January to March, up from its November forecast of 0.1 percent.

The euro zone economy grew 0.1 percent in the fourth quarter
of 2009, helped by a 0.6 percent consumption-led expansion in
France but held back by stagnation in Germany.

An unexpected fall in Germany’s Ifo business sentiment index
this month has raised the possibility that the eurozone’s
largest economy could contract in the first quarter while
consumer reports in France have pointed to a signficant pullback
in shopping habits.

The European Commission said euro zone economic sentiment
eased marginally in February, defying expectations for a rise.

The fiscal crisis in Greece has also dimmed the outlook.
Warnings from ratings agency Standard & Poor’s that it could cut
the country’s rating by one or two notches added to these
concerns, helping the euro hit a one-year low against the yen on


Thursday’s reports reinforced expectations that the European
Central Bank will keep its key interest rate at 1 percent for
some time.

Money supply growth accelerated just 0.1 percent in January,
while lending to euro zone firms fell to an 18-month low, the
ECB said.

“For the ECB there is really no reason to fear inflation
based on the money supply and credit figures … the chance of a
rate hike this year is very remote,” said Kenneth Broux, an
analyst at Lloyds TSB.

France said on Wednesday that its headline jobless total
rose 19,500 in January, up 0.7 percent from the previous month.
[ID:nPAB008193] German unemployment also rose by 7,000, although
that was a smaller rise than had been expected. [ID:nLDe61O0SR]

Workers at France’s Total refineries and air traffic
controllers have been on strike this week over job cut fears.

A one-day general strike in Greece on Wednesday halted
flights, train and ferries as thousands protested government
austerity measures.

Concerns over the fiscal problems in Greece and other
peripheral euro zone countries, have helped weaken the euro
slightly against other currencies, providing one brightspot in
an otherwise bleak outlook for Europe’s exporters.

Italian business confidence rose for the fifth month running
in February to reach its highest level since June 2008 as orders
edged up and the production outlook improved sharply.

“Italian manufacturing is very dependent on exports and the
improvement in confidence is probably linked to the depreciation
of the euro,” said Deutsche Bank economist Gilles Moec.

Investment Research

(Additional reporting by Krista Hughes in Frankfurt; Editing by
Susan Fenton)

WRAPUP 1-Weak euro zone confidence, lending points to grim Q1