French Business Confidence Slumped in October as Orders Slumped

By Francois de Beaupuy

Nov. 17 (Bloomberg) -- French manufacturing confidence dropped to a 21-year low in October as new orders from domestic and foreign markets fell ``significantly,'' suggesting the economy will probably contract in the fourth quarter, the Bank of France said.

The Paris-based Bank of France said its index of manufacturing confidence dropped to 77 from 86 in September, the lowest since records began in 1987. Economists expected the index to fall to 85, according to the median of 8 forecasts in a Bloomberg News survey.

``Industrial activity contracted further in October,'' the French central bank said in its monthly business survey. ``Business managers' forecasts point overall to a further decrease in activity over the coming months.''

Gross domestic product in the 15 euro nations shrank 0.2 percent for the second straight quarter in the three months through September, its first recession since the introduction of the single currency almost a decade ago.

On Nov. 6, the European Central Bank lowered its benchmark rate by a half-point to 3.25 percent, the second such reduction in a month. As inflation ebbs, policy makers are now signaling further cuts when they meet in Frankfurt on Dec. 4.

French GDP will probably shrink by 0.5 percent in the fourth quarter, the Bank of France said. The French economy grew 0.1 percent in the third quarter after contracting 0.3 percent in the second, a government report showed last week. That would leave full-year growth at 0.9 percent in 2008, the central bank said.

French retail sales fell 0.8 percent in October from September, when they rose 1.3 percent, the Bank of France also said.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net.