Confidence in the global economy fell in September as financial turmoil deepened in the U.S., a survey of Bloomberg users on five continents showed.
The Bloomberg Professional Global Confidence Index fell to 11.3, from 14.1 in August. Confidence among U.S. respondents fell to 10.6 from 18.2, while the Western European measure was at 12.6 after 12.9. A reading below 50 indicates pessimism.
A yearlong credit squeeze culminated in the past two weeks with the bankruptcy of Lehman Brothers Holdings Inc. and the bailout out of Fannie Mae, Freddie Mac and American International Group Inc. Overnight borrowing costs soared as banks hoarded cash.
``We moved from Fannie and Freddie to Lehman to AIG, and even today, one question is: who is going to be next?'' said Simon Barry, an economist at Ulster Bank in Dublin, who participated in the survey. ``A lot of these risks haven't gone away.''
The MSCI index of global financial shares has declined 10 percent since early last week. The U.S. Federal Reserve yesterday said it would lend the country's biggest insurer, American International Group Inc., $85 billion to avert the worst financial collapse in history. A day earlier, Lehman Brothers filed for bankruptcy and Merrill Lynch & Co. agreed to be taken over by Bank of America Corp.
About 3,500 Bloomberg users from Tokyo to New York posted responses between Sept. 8 and Sept. 12 as investors absorbed U.S. Treasury Secretary Henry Paulson's decision to bail out Fannie Mae and Freddie Mac, the lenders which own or guarantee $12 trillion of U.S. mortgages.
Credit Losses
Banks worldwide have tallied more than $500 billion in losses and writedowns since credit markets seized up a year ago.
``We haven't experienced anything like this since 1929,'' Former European Central Bank chief economist Otmar Issing, 72, said in a Bloomberg Television interview yesterday. ``Global growth will slow and is already slowing. But overall, the risks have mostly been confined to a few industrialized countries.''
Bloomberg users increased expectations that lower oil prices will allow central bankers to pare interest rates as the economic outlook deteriorates. In Germany, the measure for central bank- rate expectations fell to 34.1 from 42.7, signaling respondents in Europe's biggest economy now anticipate that the European Central Bank may cut its key rate in the coming six months. The gauges also declined in the U.S., Japan, and the rest of the euro region.
The price of oil fell by a third since touching a record $147.27 in July and traded at $93.26 a barrel in New York at 10:42 a.m. Central European Time today.
Timing of Recovery
``For global business confidence to improve two things are needed: the U.S. housing market to bottom out and a sign that the financial turmoil is nearing an end,'' said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. ``That won't be until around the second quarter in 2009.''
The cost of borrowing in dollars overnight more than doubled yesterday as banks hoarded cash amid speculation more financial institutions will fail. The overnight dollar rate soared 333 basis points to 6.44 percent, its biggest jump, according to the British Bankers' Association.
The euro region and the Japanese economies both contracted in the second quarter, while the European Union says the U.K. will suffer a recession in the second half of the year. In the U.S., unemployment jumped to 6.1 percent in August, the highest in five years.
Respondents in Japan were the most pessimistic about the global outlook. Participants in Spain, which the EU says faces its first recession in 15 years, were the gloomiest about their economy, with a reading of 4.1, followed by the U.K. Participants in Brazil remained the most optimistic about their economy, at 58.2.
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