Tuesday, there was yet another gloomier forecast for the German economy. In France, consumer spending declined more than expected in February, while business confidence remained at a record low level in March. UK annual inflation unexpectedly accelerated in February mainly on weak sterling, while retail price inflation reached the lowest since 1960.


The German government forecast the largest Eurozone economy to contract in the range of 4% to 4.5% this year, the German newspaper Bild reported. In January, the government had estimated an annual contraction of 2.25% for 2009.

The German Federal Statistical Office said exports fell 6% year-on-year in the fourth quarter to EUR233.8 billion. In price-adjusted terms, exports were down 7.8% in the fourth quarter.

Household consumption expenditure in manufactured goods decreased 2% month-on-month in February after rising 1.7% in January, the French statistical office INSEE said. The decline was twice quicker than the expected fall of 1%.

Consumers are responding to the deteriorating labor market conditions with some buying resistance, Dresdner Kleinwort analyst Rainer Guntermann said.

Separately, the statistical office said the business confidence indicator in March was stable at its record low level of 68. The lack of a clear-cut improvement in confidence probably means that companies will remain in restructuring mode, Guntermann noted.

The Eurozone recorded a current account deficit of EUR12.7 billion in January, on a seasonal and working day adjusted basis, larger than a deficit of EUR7.6 billion in December, the European Central Bank said.

In other news, the fall seen in Eurozone private sector activity slowed in March, reports said, citing results of a survey carried out by the Markit Economics. The flash purchasing managers' index, or PMI, for Eurozone manufacturing sector stood at 34 in March, up from 33.5 recorded in February. The services PMI rose to 40.1 from 39.2. The improvement in both these indexes reflected in the composite index, which rose to 37.6 from 36.2. A PMI reading above 50 indicates expansion in the sector, while below 50 suggests contraction.

Governing Council member Erkki Liikanen said the European Central Bank still has room for adjusting interest rates. The policymaker, who heads the Bank of Finland, made the comment while presenting the latest economic forecasts for the Finnish economy.

If the recession becomes further prolonged and the downside risks to price stability increase, it will be necessary for the ECB to broaden its arsenal of non-standard measures and extend the duration of the measures. It is important to keep all options open, Liikanen added.

The latest forecast showed that the Bank of Finland expects the Finnish economy to shrink 5% in 2009.

Statistics Finland announced that the jobless rate stood at 7.6% in February, up from 7% recorded in the previous month.

The Statistical Service of the Republic of Cyprus said that the industrial output price index dropped 3.3% month-on-month in January, after falling 0.3% in December.

Malta's National Statistics Office said in a report that the overall occupancy rate in collective accommodation establishments stood at 31.5% year-over-year in January, up from 30.3% increase in the previous month.

The National Bank of Belgium said in a report that the business confidence indicator rose to minus 28.6 in March from minus 31.6 in February. Economists had expected a reading of minus 32.

Rest of Europe

In the UK, annual inflation increased to 3.2% in February from 3% in the prior month, the Office for National Statistics said. Economists had expected consumer price inflation to ease to 2.6%. Despite strong negative contributions from housing and motoring expenditure, retail prices remained flat on a yearly basis, the lowest level since 1960. After the 0.1% gain in January, economists were looking for an annual fall of 0.7% in February.

As the inflation remained more than one percentage point above the 2% target, Bank of England Governor, Mervyn King was forced to write another open letter to the Chancellor of the Exchequer, Alistair Darling stating reasons for the above target inflation.

King expects sharp decline in CPI inflation since its peak in September to resume in the coming months. He added, It is likely that over the next year CPI inflation will move below target, although the profile of inflation could be volatile, reflecting the reversal of the temporary change in VAT on CPI inflation. In the Treasury Committee hearing today, King said the outlook for inflation relative to the target would guide the timing of the return of interest rates to more normal levels.

UK lenders approved 28,179 mortgages for house purchase in February, a decline of 30.6% year-on-year, the British Bankers' Association said. The number was 24,278 in January, which was revised from an initial 23,376.

Hungary's Central Statistical Office announced that the retail sales dropped 2.8% year-over-year in January, compared with a 3.2% fall in the previous month, revised from 3.9% decline reported initially. Economists were looking a decline of 4.5%.

Statistics Sweden announced that the producer price index or PPI rose 3.4% year-over-year in February, slower than the 3.9% increase in the previous month. The February inflation came in line with economists' expectation.

The Czech Statistical Office said the retail trade at constant prices fell 3.3% year-on-year in January, reversing a 0.1% rise in the previous month.

Statistics Iceland said in a report that the consumer price index or CPI rose 15.2% year-over-year in March, slower than the 17.6% rise seen in the previous month.

The Central Statistical Office of Poland said the jobless rate increased to 10.9% in February from 10.5% in the previous month. The rate came in line with economists' expectations. The office also announced that Poland's retail sales at current prices fell 1.6% annually in February, reversing the 1.3% rise in January. Economists expected sales to fall 0.6%.

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