French Business Confidence Declines to Five-Year Low

By Helene Fouquet

Sept. 24 (Bloomberg) -- French business confidence fell to the lowest in five years in September as the global economic slowdown dimmed the outlook for sales.

An index of sentiment among 4,000 manufacturers fell to 92 from a revised 97 in July, the last month reported, according to Insee, the Paris-based national statistics office. That was the lowest since August 2003. Economists expected a reading of 97, according to the median of 22 estimates in a Bloomberg survey.

``Business leaders have no more illusions: things are going bad and they no longer believe that they have ways to slip past the crisis,'' Jean-Louis Mourier, an economist with Aurel Leven in Paris, said on Bloomberg Television. ``The global slowdown is weighing on their outlook. We hope for a rebound by the end of the year.''

The French economy contracted for the first time in more than five years in the second quarter, cooling 0.3 percent from the first three months. Finance Minister Christine Lagarde predicts the expansion in Europe's third-largest economy's next year would be ``soft'' after growth of about 1 percent in 2008, the slowest pace in six years.

U.S. Bailout

The 25 percent decline in the price of crude oil since a July 11 record of $147.27 and the euro's decline from its peak that same month have yet to boost confidence among manufacturers as turmoil in the financial markets threatens to further sour growth. The euro has now gained 3.7 percent since Sept. 16, making European goods less competitive, on concern the proposed $700 billion bailout of financial companies in the U.S. will hurt demand for the dollar.

Italian business confidence fell to the lowest in seven years in September a report showed today. German business confidence probably declined to the lowest level in more than three years in the month, another report will show today, according to a survey of economists by Bloomberg News.

Insee's sub-index of how executives see the economic outlook fell to minus 42 from a revised minus 33; a gauge of orders dropped to minus 24 from a revised minus 19; and a measure of foreign orders slipped to minus 27 from a revised minus 16. A gauge for executives' outlook for their own production fell from a revised minus 1 to minus 10.

Forecast Cut

The European Commission on Sept. 10 cut its forecast for growth in the euro zone to 1.3 percent for this year from 1.7 percent. That prediction may need to be trimmed further as the deepening crisis in credit markets that led to the bankruptcy of Lehman Brothers Holdings Inc. threatens to further sap producer and consumer demand.

``Continuing turmoil in financial markets, rising energy and commodity prices and falling business and consumer confidence may result in the macroeconomic outlook deteriorating further,'' according to the EU's quarterly labor-market review released on Sept. 22. ``Economic activity is expected to weaken further in the second half of 2008.''

``France's manufacturing shrank very fast this month and I have little hope,'' Jean-Christophe Caffet, an economist at Natixis in Paris said in an interview. ``The oil price drop and a more competitive euro may not help manufacturers.

Earnings Hurt

Trigano SA, a French maker of mobile homes reported fourth- quarter sales missed its targets, falling 24 percent. European Aeronautic, Defence & Space Co. said on Sept.9 it will shift work to non-European countries including Tunisia as it seeks 1 billion euros in cost-savings, two-thirds from its planemaking unit Airbus SAS. The plan is meant to help EADS cope with a weak dollar relative to the euro.

Renault SA, France's second-largest carmaker, said on Sept. 1 it will cut 4,000 jobs in the country under a savings program to make up for soaring raw-material costs and flagging European auto markets.

``Renault's massive job cuts will also weigh on manufacturers' confidence,'' Caffet said.

Europe's manufacturing and service industries contracted at the fastest pace in almost seven years in September as the credit-market seizure intensified and companies scaled back production in response to slowing orders, a report showed yesterday.

To contact the reporters on this story: Helene Fouquet in Paris hfouquet1@bloomberg.net