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French Business Confidence Falls to 15-Month Low (Update1)

French Business Confidence Falls to 15-Month Low

March 29 (Bloomberg) -- Business confidence in France, Europe's third-largest economy, unexpectedly fell to the lowest in 15 months in March as rising oil costs and the euro's gains held back export growth.

An index measuring sentiment among 2,000 manufacturers declined to 101, its weakest since December 2003, government statistics office Insee said today in Paris. The gauge was forecast to hold at 104, according to the median forecast of 22 economists surveyed by Bloomberg.

Europe's ``been slowing since the third quarter because of the euro, oil and slowing exports,'' said Anne Beaudu, an economist at Credit Agricole SA in Paris. ``This is worrying for growth in the second quarter.''

German and Italian business confidence fell in March, reports last week showed, signs that the euro region's economy is struggling to rebound after growth stagnated in the fourth quarter. The pace of expansion hasn't been strong enough to bring down unemployment, in turn hurting consumer spending.

Kesa Electricals Plc, whose Darty chain is France's largest consumer-electronics retailer, said March 23 business has become more difficult in the past two months because of low consumer confidence.

Reduced Forecasts

Finance Minister Thierry Breton on March 16 trimmed the government's growth forecast for 2005 to as low as 2 percent from 2.5 percent because of oil costs and the dollar's decline. Insee said March 24 that the French economy will expand 0.6 percent in the first quarter and 0.3 percent in the subsequent three months, after 0.8 percent growth in the fourth quarter.

The European Commission will release its report on business and consumer confidence for the euro region on March 31 in Brussels. An index of industrial confidence may have declined to minus 8 from minus 7, according to the median of 26 forecasts in a Bloomberg survey.

The increase in Brent crude oil prices to a record $56.15 a barrel on March 17, combined with the euro's 6.5 percent gain against the dollar in the past 12 months, are making European exports more expensive and putting pressure on manufacturers' profits.

The euro rose 0.4 percent to $1.2944 at 9:01 a.m. in Paris.

Factory prices in France advanced 3.1 percent from a year ago, Insee said in a separate report today. Prices rose 0.3 percent from January, when they climbed a revised 0.4 percent. Economists had predicted an increase of 0.4 percent, according to the median of 14 estimates in a Bloomberg survey.

`More Difficult'

Edouard Michelin, Chief Executive Officer of Michelin & Cie. SCA, Europe's biggest tiremaker, forecast on March 15 a ``more difficult'' 2005 as costs for materials will rise by 13 percent and lead to a ``less robust'' first half.

European car sales fell 2.3 percent in January-February from a year earlier, pointing to ``a slow start of the year in an economic environment that remains sluggish,'' the Brussels-based European Automobile Manufacturers Association, which includes companies such as PSA Peugeot Citroen and Renault SA, said March 16.

A gauge measuring French manufacturers' expectations for their production fell to 5 this month from 9 in February, Insee said today. A gauge of total new orders dropped to minus 21 from minus 15 in February, and a measure of foreign orders alone declined to minus 16 from minus 12.

Manufacturing Slowdown

``The European recovery remains fragile,'' said Valerie Quesada at CPR Asset management in Paris, which oversees the equivalent of $20.7 billion. ``Companies continue to focus on profits and aren't choosing to hire.''

That view will probably be borne out by reports this week on unemployment in Germany and France, the two largest economies in the euro region. German unemployment may have risen for a 14th month to a post-World War II record of 11.9 percent, the median of 26 economist forecasts showed. The Federal Labor Agency will release that report on March 31.

Companies including Infineon Technologies AG, Europe's second- biggest chipmaker, and Deutsche Bank AG, Germany's largest bank, are cutting jobs or moving them abroad in response to slowing growth and rising costs. Alstom SA, a Paris-based engineering company that received a state-led bailout last year, said Feb. 16 it will shed about 200 jobs in France and 100 in Germany.

Consumer Concerns

In France, Labor Ministry figures may show the number of jobseekers was unchanged in February, according to a median of 16 estimates. That would keep the unemployment rate at 10.1 percent, the highest since January 2000.

Concern over job security has stifled consumer spending in Europe. The commission's gauge of consumer confidence probably held at minus 13 for a seventh straight month in March, economists predict.

Porsche AG, Bayerische Motoren Werke AG and DaimlerChrysler AG's Mercedes are offering discounts of as much as 15 percent in Germany to revive demand, weekly industry newspaper Automobilwoche reported on March 25.

The European Central Bank will probably keep its benchmark interest rate at a six-decade low of 2 percent at least until the end of June to help foster growth, interest rate futures trading suggests.

The June Euribor contract fell to 2.24 percent at 8:55 a.m. in Paris from 2.35 percent on Jan. 1. By contrast, the U.S. central bank has lifted its benchmark rate to 2.75 percent from 1 percent a year ago.


LINK: http://www.bloomberg.com/apps/news?pid=10000087&refer=top_world_news&sid=ai3ntlSu1O0w