French Manufacturing Confidence Declined, BoF Says

By Simone Meier

Aug. 18 (Bloomberg) -- French manufacturing confidence fell to the lowest in five years in July as a stronger euro and rising oil prices dimmed the outlook for growth in Europe's third-largest economy.

The Paris-based Bank of France said its index of manufacturing confidence declined to 92, the lowest since May 2003, from 95 in June. Economists expected a drop to 94, the median of 10 forecasts in a Bloomberg News survey showed.


The French economy is weakening as surging oil prices erode the spending power of companies and consumers just as the euro's ascent against the dollar makes exports less competitive abroad. The data suggests the economy grew 0.1 percent in the third quarter after contracting 0.3 percent in the prior three months, the central bank said.

``According to business managers' forecasts, industrial activity is expected to decline over the coming months,'' the report said.

Foreign orders dropped faster than domestic ones, the Bank of France showed in its survey, led by ``slower European Union demand.'' The trade deficit expanded in June to 5.6 billion euros ($8.7 billion), a record.

French economic growth may slow to 1.6 percent this year from 2.2 percent in 2007 followed by a reacceleration in the second half of 2009, the Washington-based International Monetary Fund said on July 17. The IMF previously forecast the economy would expand 1.4 percent this year. Gross domestic product fell 0.3 percent from the first quarter, national statistics office Insee in Paris said last week.

French industrial production, which accounts for 15 percent of the euro-area's second-largest economy, unexpectedly declined in June as car sales fell, Insee said on Aug. 11. Bank of France said today that production forecasts for the automotive industry fell in July.

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net