Bloomberg News

French Business Confidence, Italian Output Fall: Economy

June 08, 2012

French Business Confidence, Italy Output Drop on Demand

After less than a month in office, President Hollande is facing rising unemployment as companies from Air France-KLM Group to PSA Peugeot Citroen contemplate job cuts. Photographer: Fabrice Dimier/Bloomberg

French business confidence and Italian output declined as recessions in at least six European countries weighed on demand and risked causing a quarterly contraction in France for the first time in three years.

Sentiment among French factory executives fell in May to 93 from a revised 94 in April, the Bank of France said today in an e-mailed statement. Italian industrial production dropped 1.9 percent in April from March, when it rose a revised 0.6 percent, Rome-based statistics office Istat said.

Confidence has stagnated all year, last showing an increase in December, and today’s reading suggests that France, Europe’s second-largest economy, will shrink 0.1 percent in the second quarter, the central bank said. With neighbors such as Spain and Italy already in recession and unemployment crimping demand at home, French executives are restraining costs and may hold off on investment.

Companies are in “a cautious mood given the weakening order books,” said Pierre-Olivier Beffy, chief economist at Exane BNP Paribas in London. “The rebound we initially expected in the second quarter” may not materialize and the possibility of a “negative quarter is increasingly likely.”

Stocks fell, the euro declined and oil headed for the longest weekly losing streak in 13 years after Federal Reserve Chairman Ben S. Bernanke damped expectations for monetary stimulus and German exports dropped. U.S. Treasuries and the yen rallied.

Stocks Drop

The MSCI All-Country World Index (MXWD) dropped 0.7 percent at 9:46 a.m. in Paris, paring its weekly gain to 2.4 percent. The Stoxx Europe 600 Index sank 1 percent, while Standard & Poor’s 500 Index futures lost 0.7 percent. The euro fell 0.6 percent while the yen gained versus all its major counterparts. Oil slumped 2.5 percent, poised for a sixth week of declines. The S&P GSCI gage of commodities tumbled 1.8 percent and gold fell 1.1 percent.

Italy’s economy, the euro area’s third-biggest, fell into a recession in the fourth quarter of last year just as Prime Minister Mario Monti pushed through 20 billion euros ($25 billion) in austerity measures to tackle the debt crisis. The nation’s joblessness rate of 10.2 percent is the highest in more than a decade and consumer confidence is at the lowest in more than 15 years amid Italy’s fourth slump since 2001.

Bracing for Impact

Policy makers across the globe are girding for a deeper impact from Europe’s debt crisis, with China cutting borrowing costs yesterday for the first time since 2008 and loosening controls on bank lending and deposit rate. Australia and Brazil have also lowered rates in the past eight days.

Gross domestic product in the 17-nation euro-area economy stalled in the first quarter as companies cut spending to weather the sovereign debt crisis, offsetting a gain in exports, the European Union statistics office in Luxembourg said June 6.

The European economy is struggling to gather strength after the need for new Greek elections and Spain’s worsening banking crisis heightened concerns that the single currency could splinter.

For French President Francois Hollande, the stalled economy presents a challenge after winning this year’s election on a promise to revive growth. After less than a month in office, he’s facing rising unemployment as companies from Air France-KLM Group (AF) to PSA Peugeot Citroen contemplate job cuts.

Order Books

“Industrial output fell back in May, notably in the car and metal sectors,” the Bank of France said today. “Factory use contracted and weakening demand has led to an erosion of order books.”

The Bank of France also said today that its gauge of service-sector demand fell to 92 from 93, its lowest since 2010.

Any drop in France’s growth rate would force the government to make deeper-than-expected cuts to meet its target of reducing the budget deficit to 4.5 percent of GDP this year and 3 percent next year.

“Hollande’s honeymoon will be brief,” said Joost Beaumont, an economist at ABN Amro in Amsterdam. “His biggest domestic challenge will be to restore order in public finances. It’s likely there will be fiscal slippage, given his optimistic growth assumptions and tendency to lean more toward raising revenues than cutting spending.”

Hollande, whose Socialist Party faces legislative elections on June 10 and 17, has promised to introduce a new budget to meet those targets in late June or early July.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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