French industrial confidence rose for a third month in February, suggesting demand from abroad is supporting Europe’s second-largest economy.
Sentiment among manufacturing executives climbed to 96 from 95 the previous month, the Bank of France said today in an e- mailed statement from Paris. The reading indicates gross domestic product will rise 0.1 percent in the first quarter, the central bank said.
Manufacturers are benefiting from a recovering world economy as domestic demand flags in the face of President Francois Hollande’s efforts to reduce the budget deficit. The Bank of France’s services index, which is more closely correlated to domestic demand, fell to 88 from 90.
“Improving global conditions should be increasingly reflected in the business confidence surveys,” said Joost Beaumont, an economist at ABN Amro in Amsterdam. “The French economy should be on the verge of bottoming out, though that doesn’t mean things will improve quickly.”
Hollande has raised taxes by about 27 billion euros ($35 billion) since coming to office last May and is now looking for ways to reduce government spending after the European Commission said France is on track to miss its target of reducing the budget deficit to 3 percent of gross domestic product this year. France’s unemployment at a 13-year high is reducing both consumer spending and investment.
The service-industry slowdown is in contrast with Germany, Belgium and Austria, where deficit reduction is more advanced and now easing or stopping, according to David Mackie, a JP Morgan economist.
“Given the common dynamic within the manufacturing sector, it is hard to blame competitiveness for the growing divergence,” Mackie wrote in a note to clients yesterday. “The most obvious explanation is fiscal policy. There is no fiscal tightening this year in Germany and only a modest amount in Belgium and Austria. In contrast, there is significant amount of fiscal tightening in both France and the Netherlands.”
The commission said Feb. 22 that France’s deficit will be 3.7 percent of GDP this year. Hollande’s government is looking for ways to reduce it further.
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