Business and Finance

Confidence in the world economy dropped in February on concern worsening government finances in some European nations will derail the global recovery, according to a Bloomberg survey of users on six continents.

The Bloomberg Professional Global Confidence Index dropped to 54.9 from 66.6 in January, when the reading was at the highest level since the series began two years ago. The index exceeded 50 for a seventh month, which means there were more optimists than pessimists. The survey was conducted last week, before Germany and other European Union nations signaled they may help support Greece’s government finances.

Greece, Spain and Portugal are among European nations struggling to control widening budget deficits, prompting investors to dump the countries’ assets and question the sustainability of the recovery in the global economy. More than $4.5 trillion has been wiped from stocks worldwide since Jan. 14, while credit-default swaps have risen as investors seek protection against deteriorating European government finances.

“The situation in Greece and other European economies shows us that the global deleveraging process is not over and governments cannot continue the pace of stimulus they’ve been undertaking,” said Venkatraman Anantha-Nageswaran, global chief investment officer at Julius Baer & Co., which manages about $142 billion in assets. “We see global confidence fluctuating from month to month as growth disappoints.”

Group of Seven

The survey of 2,486 Bloomberg users was done between Feb. 1 and Feb. 5. Since the previous survey, China unexpectedly raised reserve requirement ratios for lenders, the Group of Seven finance ministers pledged to continue economic stimulus measures and a report showed the U.S. economy expanded at the fastest pace in six years last quarter.

“People aren’t concerned about the exit strategies from countries, they’re concerned about the total debt level,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York who participated in this month’s survey. “The global economy is a little bit more unsteady than it was a month ago.”

The fallout from the budget crisis in Greece has led investors to become the most bullish on the U.S. dollar since November 2008. The dollar confidence index rose to 55.7 from 53.1 in January. Most survey respondents in Europe turned more pessimistic on the outlook for the euro, expecting it to weaken against its U.S. counterpart over the next six months.

‘Downside Risk’

“If people start worrying about a big developed economy as they did Greece, that could start to affect the global growth outlook,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam, and a regular survey participant ay day loans. “Credit concerns have remained well-contained for the big countries. That suggests so far the global economic outlook is not seriously affected by this, although there are big problems about public finances and it remains a downside risk.”

The confidence gauge for Western Europe fell to 49.8 from 55.5 last month, dropping below 50 for the first time since November. Greek Finance Minister George Papaconstantinou has struggled to convince investors that the government can push its deficit below the European Union’s ceiling of 3 percent of gross domestic product.

Germany is considering assistance for Greece after the country’s deficit threatened the stability of financial markets, two lawmakers from Chancellor Angela Merkel’s governing coalition said Feb. 9. The European Union is scheduled to hold a summit in Brussels today.

Greek Tragedy

“The officials need to give a clear indication that it’s not just about fire-fighting Greece but also putting forward a wider European bailout mechanism that is applicable to other countries that get into trouble,” said Fortis’s Kounis. “That could stem the confidence crisis and boost credibility.”

A measure of U.S. participants’ confidence in the economy fell to 41.3 this month from 54.4 in January. More Americans unexpectedly filed first-time claims for unemployment insurance even as the jobless rate dropped in January, while Federal Reserve policy makers are attempting to gauge whether the economy is strong enough for them to withdraw unprecedented stimulus.

“It’s a jobless recovery,” said Jonathan Basile, an economist at Credit Suisse Group AG in New York and a regular survey participant. “The U.S. economy is still going to expand, it’s just not going to expand as quickly as the fourth quarter. We’re a long way from acceptable levels of unemployment” of about 5 percent that the Fed is comfortable with, he said.

Asia’s index fell to 70.8 in February from 79.8, while the confidence gauge for Japan dropped to 40.6 from 44.1. Japan’s government must heed the warning on soaring debt loads stemming from the turmoil in Greece and concerns about the credit quality of some European countries shouldn’t be regarded as “a burning house on the other side of the river,” Bank of Japan board member Seiji Nakamura said Feb. 4.

Most Bloomberg users were less optimistic on the outlook for their equity markets in the next six months, with respondents in the U.S., the U.K. and Spain turning bearish. Survey participants in the U.S. and Europe remained confident short-term interest rates will rise in the next six months, the survey showed.

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