Bloomberg News

French Business Sentiment Drops as Stalled Economy Cuts Demand

December 10, 2012

French business confidence and industrial production unexpectedly declined as President Francois Hollande grapples with a budget deficit and an economy that is on the verge of recession.

Sentiment among manufacturing executives fell to 91 in November from 92 the previous month, suggesting gross domestic product may fall 0.1 percent this quarter, the Bank of France said today. Industrial output dropped 0.7 percent in October, leaving it down 3.6 percent from a year earlier, national statistics office Insee said in a separate release.

The declines show the economy is on the edge of its second recession in three years as Hollande struggles to cut the deficit and improve competitiveness. With French car registrations down about a fifth in November, companies including PSA Peugeot Citroen (UG) are cutting thousands of jobs at a time when jobless claims are at a 14-year high and climbing.

“Clearly things are not great and the car industry in particular is a disaster,” said Dominique Barbet, an economist at BNP Paribas SA in Paris, who predicts that GDP will decline this quarter and in the first three months of 2013. “Consumer spending is depressed and as long as the labor market remains unfavorable, confidence will remain weak.”

Economists forecast that industrial production would rise 0.2 percent in October, according to the median of 23 estimates in a Bloomberg News survey. Confidence had been projected to remain at 92 in November, a separate poll showed.

Crisis Concerns

Italian industrial output fell 1.1 percent in October from September, when it dropped 1.3 percent, data today showed. Reports last week showed industrial production in both the U.K. and Germany unexpectedly declined. Germany’s Federal Statistics Office said today exports rose 0.3 percent as shipments to countries outside Europe offset weaker demand in the euro area.

Separately, Sentix said its index of European investor confidence increased for a fourth month in December, rising to minus 16.8 from minus 18.8 in November. Still, the gauge remains well below its 10-year average of about 0.3, according to Bloomberg data.

The euro weakened against the dollar for a fourth day as Italian Prime Minister Mario Monti’s intended resignation and a delayed Greek bond buyback reignited concern about the debt crisis. The euro fell 0.2 percent to $1.2899 as of 11 a.m. in Paris, while the Stoxx Europe 600 Index declined 0.5 percent.

China Slowdown

Elsewhere, China’s economy continued to show signs of cooling. Exports rose less than forecast in November, underscoring the need to accelerate a shift toward domestic demand. Overseas shipments increased 2.9 percent from a year earlier and imports were unchanged, the customs administration said in Beijing, contrasting with industrial production and retail sales figures yesterday that exceeded estimates.

In Japan, government data indicated that the nation has entered a technical recession, defined as two consecutive quarters of contraction. Third-quarter gross domestic product shrank at an annual pace of 3.5 percent, a final reading showed. The government revised down the second-quarter figure to show a 0.1 percent contraction.

For France, cooling global growth is increasing the challenge of both deficit reduction and improving competitiveness.

Hollande has announced about 27 billion euros ($35 billion) in tax increases since coming to power earlier this year in a bid to shrink the deficit to 3 percent of GDP in 2013. Even so, the government risks missing that goal as growth disappoints, the International Monetary Fund and the European Commission have said.

“The persistent deterioration in external competitiveness observed over the past 10 years is not likely to be reversed in the medium term,” the commission said in a report last month. “French companies are set to continue to lose export market share.”

The commission predicts the French economy will expand 0.1 percent this year and 0.4 percent next as exporters continue to lose ground to competitors. Hollande expects 0.8 percent growth in 2013.

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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