Eurozone economic sentiment hit a fresh low in March, but confidence weakened more slowly than in the first two months of 2009 amid signs of stabilization in some sectors, a monthly survey carried out by the European Commission showed Monday.

The economic sentiment index unexpectedly dropped to 64.6 in March from 65.3 in February. Economists were looking for a reading of 65.8. The indicator stood at its lowest level since the series began in January 1985. The fall in the index was attributed to the deteriorating sentiment in the industry and services sectors.

Consumer confidence and services confidence in March declined one point each to minus 34 and minus 25, respectively. While industrial confidence slid 2 points to minus 38, confidence in construction remained at minus 32. By contrast, retailers' confidence improved slightly to minus 18 from minus 19 in February.

Economic confidence for the EU also slid 0.6 points to 60.3 in March. Of the five sub indices, industrial and services confidence deteriorated in March, while confidence among consumers and constructors stagnated. The only indicator that showed improvement was the retail trade confidence index.

Among the largest Member States, Italy witnessed the most significant decline in sentiment, while the fall has been more marginal in France, Poland, Germany and the UK.

The financial services confidence indicator, not included in the ESI dropped 4 points in the Euro area, reversing the previous month's gain. Managers' expectation of demand for their services worsened in March from the previous month.

The business climate indicator for the Euro area fell to minus 3.58 in March, the lowest level since January 1985. The gauge stayed below the expected reading of minus 3.48. The indicator signaled that the industrial production would remain subdued in March.

The decline in the index reflects a worsening situation in most of its underlying components. Managers' assessment of current overall order books and export order books weakened even further. At the same time, stocks of finished goods rose towards December's record highs and the production trend witnessed in recent months improved only marginally from a very low level. Managers remain very negative about their production expectations outlook.

Christoph Weil, Commerzbank's analyst said today's result suggests that the Eurozone economy will have contracted by roughly 2% sequentially in the first three months of 2009. Though the pace of contraction should be slower in the second quarter, the economy seems unlikely to hit its lowest point until the end of the year.

Analyst expects GDP to fall 4.5% for the whole of this year, which would be followed by modest performance in 2010. The EU 16 would still possibly grow then at a below the long-term average.

The European Central Bank is expected to cut the key interest rate by 50 basis points to 1% and consider additional unconventional measures this week. The central bank had already reduced the rate to the lowest level in the institution's 10-year history.

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