French industrial confidence remained near its lowest in two years in August, increasing pressure on President Francois Hollande’s government to revive growth in the face of Europe’s debt crisis.
Sentiment among factory executives rose to 90 after July’s reading was revised down to 89, national statistics office Insee in Paris said in a statement today. That’s in line with the median of 20 forecasts in a Bloomberg News survey. A gauge that includes retailers, builders and service industries was unchanged at 87, the lowest in almost three years.
Weak confidence at businesses underlines Hollande’s challenge as he attempts to keep a commitment to reduce the budget deficit at a time when the economy has failed to grow for three straight quarters. Prime Minister Jean-Marc Ayrault will address business leaders on the economy later today near Paris.
“France, unlike Germany, might suffer from the sharp tightening in fiscal policy following measures implemented over the summer,” said Francois Cabau, an economist at Barclays Capital in London. “Ayrault already said that growth assumptions might have to be revised down from the current 1.2 percent for 2013.”
The euro was within half a cent of an eight-week high against the dollar before Italian Prime Minister Mario Monti and German Chancellor Angela Merkel meet in Berlin today, trading at $1.2559 as of 11:35 a.m. in London.
Italian consumer confidence dropped to 86 in August from 86.5 in July, the national statistics office said. The decline matched the median forecast in a Bloomberg survey.
Italy’s two-year notes were little changed at 3.054 percent after the nation sold 9 billion euros ($11.3 billion) of 181-day bills at an auction. The rate has fallen from 3.75 percent a month ago after European Central Bank President Mario Draghi said the ECB may intervene to help lower borrowing costs in some euro nations, a proposal that has led to a rift with Germany’s Bundesbank.
In a commentary for Die Zeit newspaper, Draghi hit back at criticism of his plan.
The ECB “will always act within the limits of its mandate,” he wrote. “Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools.”
The bleak business outlook in France, the euro area’s second-largest economy, is translating into rising unemployment. Jobless claims jumped to a 13-year high in July, the Labor Ministry said this week.
Hollande wants to improve economic growth by bolstering Europe’s crisis-fighting toolbox and countering the debt turmoil that has been a drag on growth for almost three years. Meeting with Merkel on Aug. 23, he said he wanted euro nations to move as fast as possible to implement the terms of a June agreement on a banking union and the use of bailout funds.
Whether or not European leaders manage to reassure investors, Hollande also knows he has an uphill task at home. According to the national auditor, he will have to find about 33 billion euros in new tax revenue or savings by the time his government sets out its 2013 budget on Sept. 24. The budget hole will be larger if the Finance Ministry is forced to lower its growth forecasts.
Germany’s BGA business association, which represents exporters, wholesalers and services companies, said today that Europe’s largest economy will expand at a “flatter” trajectory, though it “won’t fall off a cliff.” Five German states said today inflation accelerated in August on higher energy prices. The Federal Statistics Office will release national data on inflation at 2 p.m. today.
In Asia, there were further signs of pressure on China’s economy after export growth almost stalled in July and factory output missed forecasts. Retailers selling goods from clothing to computers are reporting weaker sales growth, undermining Premier Wen Jiabao’s goal of relying more on consumer spending for expansion.
Passenger-vehicle sales trailed analysts’ estimates in July. Sportswear seller Li Ning Co. shut 1,200 stores in the first half and department-store chain Parkson Retail Group Ltd. (3368)’s same-store sales rose at less than a quarter the pace of a year earlier. Gome Electrical Appliances Holding Ltd. (493) said it would report a first-half loss on lower sales.
The Federal Reserve releases its Beige Book survey of economic conditions in 12 U.S. districts later today, two weeks ahead of the Sept. 12-13 policy meeting of the Federal Open Market Committee. Before that, the Commerce Department’s first revision to second-quarter gross domestic product may show a gain of 1.7 percent compared with an initially reported 1.5 percent increase, according to a Bloomberg survey. In the first three months of the year, the economy expanded 2 percent.
To contact the reporters on this story: Mark Deen in Paris at firstname.lastname@example.org; Jeff Black in Frankfurt at email@example.com
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