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Eurocoin Falls, Points To Deepening Euro-Zone Contraction

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07/27/2012 | 03:45am EST

By Paul Hannon

The euro-zone economy contracted at a steeper pace in July as consumer and business confidence weakened in the face of deepening fiscal and banking crises, according to a measure of activity compiled by the Centre for Economic Policy Research and the Bank of Italy.

The CEPR and the Bank of Italy Friday said their Eurocoin indicator fell to -0.24% in July from -0.17% in June, its lowest level since July 2009.

The Eurocoin indicator is intended to estimate quarter-on-quarter growth in gross domestic product, excluding erratic components, such as seasonal variations and short-run volatility.

"The deterioration was due principally to the negative results of surveys of businesses and households," the CEPR and the Bank of Italy said.

Surveys released Wednesday showed business confidence declined in Germany and the Netherlands during July, although business confidence improved in Belgium and consumer confidence picked up in Italy.

The Eurocoin pointed to a contraction in the euro-zone economy in each of the three months of the second quarter. It also pointed to a contraction in each of the three months of the first quarter, however, and official data from the European Union's statistics office later showed that while the economy didn't expand, neither did it contract.

Official figures for the second quarter will be released on August 14, but most economists believe the economy contracted in the three months to the end of June. The July Eurocoin reading indicates that contraction deepened at the start of the third quarter, setting the currency area on course for recession.

The Eurocoin is one of the earliest measures of growth in the currency area and is consistent with surveys of purchasing managers in manufacturing and services, which also pointed to a contraction in July.

Evidence that the euro-zone economy is contracting in the third quarter may persuade the European Central Bank's governing council to cut its key interest rate when it next meets August 2.

Write to Paul Hannon at paul.hannon@dowjones.com

(MORE TO FOLLOW) Dow Jones Newswires

07-27-12 0344ET

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