French Business Confidence Declines, Italian Pessimism Grows

By Ben Sills and Lorenzo Totaro

Nov. 25 (Bloomberg) -- French business confidence fell to the lowest in more than 15 years and Italian consumers grew more pessimistic as the euro-region economy slipped into a recession, threatening to choke exports and employment.

An index of sentiment among 4,000 French manufacturers declined to 80 in November, the lowest since October 1993, according to Insee, the Paris-based national statistics office. Italian consumer confidence fell to near July’s 15-year low of 95.8.

“French business confidence has truly fallen off a cliff,” said Marco Annunziata, chief economist at UniCredit MIB in London. “The data underscore the urgency of further monetary and fiscal stimulus to limit the depth and length of this recession.”

The European Central Bank is cutting interest rates and European Union officials are crafting a region-wide stimulus plan to try to limit the fallout from the global credit crisis. Reports in the past week have showed the economy is worsening, with German business confidence dipping to a 16-year low and the Organization for Economic Cooperation and Development forecasting the euro-region will contract next year.

The deepest U.S. housing slump since the Great Depression has pushed up the cost of credit globally and squeezed economic growth. Banks have clamped down on lending, leaving companies and consumers struggling to gain credit and the resulting plunge in stock markets has eroded savings and further drained confidence. The benchmark stock indexes in France and Italy have each declined more than 40 percent this year.

Economic Contraction

Gross domestic product in the 15 euro nations shrank for the second straight quarter in the three months through September and manufacturers have responded by cutting production and firing workers.

“We’re really at the heart of the slowdown,” said Laurence Boone, an economist at Barclays Capital in Paris. “There’s a realization that it takes time to restore confidence and there’s bad news both on the real economy and on the financial front.”

PSA Peugeot Citroen, Europe’s second-biggest carmaker, said Nov. 20 that it plans to cut 3,550 jobs through voluntary departures. Renault SA announced plans in July to cut 6,000 European jobs, including 1,000 at a plant in Sandouville, France, where it assembles the Laguna mid-sized car.

Job Cuts

Italy’s Pirelli & C. SpA, Europe’s third-largest tiremaker, plans to eliminate about 200 administrative jobs in Milan and will likely continue idling plants. Fiat SpA, Italy’s largest manufacturer, plans to increase temporary layoffs in the fourth quarter, idling 27 percent of the workforce.

BASF SE in Germany, the world’s largest chemicals maker, and carmakers Bayerischer Motorenwerke AG and Daimler AG are scaling back output as orders dwindle.

The OECD today forecast that unemployment in its member countries will increase by 8 million in the next two years to 42 million and economic growth in OECD will contract 0.4 percent next year.

To combat rising joblessness and prod the economy, European Union officials are crafting a stimulus package that will be based on contributions from each of the EU’s 27 national governments. German officials have estimated the package at 130 billion euros ($168 billion), a figure European Commission President Jose Barroso has refused to confirm.

Oil Prices

Manufacturers and consumers may get some relief as slowing growth depresses oil prices and helps curtail inflation. The price of oil has dropped to $53 a barrel from a July peak of $147, boosting households’ disposable income.

The decline led Spanish producer prices to plunge 1.2 percent in October, the biggest monthly decline in more than 20 years, a separate report showed today. German consumers were unexpectedly more upbeat in November as confidence rose for a third month on the decline in fuel costs, another report said today.

The slump in economic growth is fueling expectations the ECB will lower borrowing costs for a third time since Oct. 10. Investors are betting the bank will cut its benchmark rate of 3.25 percent by at least 75 basis points at its next policy meeting on Dec. 4, Eonia forward contracts show. That would be the sharpest rate reduction in the bank’s 10-year history.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net