French Business Confidence Drops as Europe Enters Recession

By Ben Sills

Nov. 25 (Bloomberg) -- French business confidence fell to the lowest in more than 15 years in November as the euro-region economy slipped into a recession.

An index of sentiment among 4,000 manufacturers declined to 80 in November from 87 the previous month, according to Insee, the Paris-based national statistics office. The reading was the lowest since October 1993 and compared with the median forecast of 85 in a Bloomberg News survey of 22 economists.

“We’re really at the heart of the slowdown,” said Laurence Boon, 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.”

Gross domestic product in the 15 euro nations shrank for the second straight quarter in the three months through September increasing the chances that the European Central Bank will cut interest rates again this year. Investors are betting the bank will lower borrowing costs by at least 75 basis points at its next policy meeting on Dec. 4 to try to get banks lending and consumers borrowing, Eonia forward contracts show.

Germany, Europe’s biggest economy and France’s largest trading partner, slipped into its worst recession in 12 years in the third quarter, damping prospects for demand for French goods. Business confidence in Germany slumped to the lowest level since February 1993 in November, a report showed yesterday.

Skirting Recession

The French economy dodged a recession in the third quarter, unexpectedly expanding by 0.1 percent. Still, French consumer spending on manufactured goods slipped the most in four months in October while September saw industrial output contract for a second month.

Pessimism is rising as the economic slowdown prompts some of France’s biggest companies to scale back production and cut jobs. PSA Peugeot Citroen, Europe’s second-biggest carmaker, said Nov. 20 that it plans to cut 3,550 jobs through voluntary departures as the region’s auto-market downturn gathers pace. The cuts are in addition to 3,000 voluntary departures Peugeot announced in February, after cutting 8,200 jobs in France last year and 2,100 elsewhere in Europe.

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.

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