French Business Confidence Plunges to 15-Year Low

By Helene Fouquet and Francois de Beaupuy

Oct. 14 (Bloomberg) -- French manufacturing confidence slumped to the lowest in 15 years in September, adding to evidence the economy was already in a recession as the global financial crisis worsened.

The Bank of France's index of manufacturing confidence fell to 87 from 94 in August, the Paris-based central bank said today. The September reading is the lowest since the same month in 1993 and is below the 92 expected by economists, according to the median of 4 forecasts in a Bloomberg News survey. New orders dropped ``markedly'' last month, the Bank of France said.

``We're at the lowest since 1993 when France was in recession and that trend is visible in all of the euro-area countries,'' Jean-Christophe Caffet, an economist at Natixis in Paris said in an interview with Bloomberg Television. The euro region is in ``a lasting slowdown.''

Growth in the economy of the 15 nations that use the euro will stagnate next year as the global credit crunch saps corporate investment and consumer spending, the International Monetary Fund predicted this month. European stocks tumbled 22 percent last week, the steepest slide in two decades, as bank lending seized up and left companies scrambling for cash.

``Industrial activity recorded a significant decline in September,'' the Bank of France said in its monthly business survey. ``Activity is expected to continue to decline in the short term.''

Distressed Lenders

European leaders agreed this week to guarantee new bank debt to keep distressed lenders afloat and help stem the rout in Europe's stock markets. Five euro-area nations committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and buy stakes in lenders to prevent a financial collapse after global credit markets dried up and borrowing costs soared.

French President Nicolas Sarkozy announced 360 billion euros in financing to shore up his country's banking system. ``Confidence must be restored as quickly as possible,'' Sarkozy told a press conference yesterday.

Gross domestic product probably shrank 0.1 percent in the third quarter, the Bank of France said, revising last month's forecast for a 0.1 percent GDP increase in the period. The French economy contracted 0.3 percent in the second quarter.

Insee, the national statistic institution, reported on Oct. 3 that GDP probably shrank 0.1 percent in the third quarter after a contraction of 0.3 percent in the three months through June. The economy will also shrink 0.1 percent in the final three months of 2008 and full-year growth will slow to 0.9 percent, the lowest rate since 1993, Insee said.

German Confidence

German investor confidence probably slumped in October as the deepening financial crisis threatened to tip Europe into a recession. The ZEW Center for European Economic Research's index of investor and analyst expectations dropped to minus 51.1 from minus 41.1 in September, according to the median of 35 forecasts in a Bloomberg News survey. ZEW releases the report at 11 a.m.

Business confidence in Germany dropped to the lowest level in more than three years in September. The country yesterday said it will provide as much as 500 billion euros in loan guarantees and capital to bolster its banking system. Germany is France's biggest trading partner.

The European Central Bank and the U.S. Federal Reserve last week led a global round of rate cuts, lowering their benchmarks by half a percentage point.

France's real-estate market is feeling the pinch from the slowdown. Nexity SA, the French developer, cut its 2008 profit forecast, citing a deterioration of the market. ``The downturn of the real-estate markets is sharper than could have been anticipated at the beginning of the summer,'' Chief Executive Officer Alain Dinin said Oct. 9.

Sailboat Maker

Beneteau SA, the world's biggest sailboat maker, has seen a decline in orders this year amid the worldwide financial crisis, Chief Executive Officer Bruno Cathelinais said. ``People are afraid'' everywhere, he said in a phone interview today. ``They have been wondering what will happen to the money they have in their bank accounts.''

In another sign that French growth is stalling, inflation in September slowed more than economists expected to 3.3 percent from 3.5 percent in August, a separate report showed today. Retail sales rose 1.8 percent in September from August, when they dropped 1.4 percent, the Bank of France also said.

To contact the reporters on this story: Helene Fouquet in Paris hfouquet1@bloomberg.net; Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.