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Tuesday, June 24, 2008

France Business Confidence and Housing Starts June 2008

French manufacturers confidence held at the weakest in more than two years in June and housing starts slumped in May, suggesting that growth in the euro-area's second-largest economy is faltering.

An index of sentiment among 4,000 manufacturers was unchanged at 102, according to Insee, the Paris-based national statistics office. In France, Insee's manufacturing confidence indexes for May and June were the weakest since December 2005.

Housing Sector

Housing starts dropped by 21.6 percent in the three months through May from a year earlier, while sales of new homes fell by nearly 28 percent in the first quarter to 26,700 units. If this pace continues it may well amount to a shock similar to the crisis at the beginning of the 1990s.

The root of the problem seems to be that lending organisations do not have confidence in the European Central Bank’s strategy for refinancing banks. The average fixed interest rate on 20-year loans has recently risen above 5.0 percent for the first time since 2003. As global financial conditions turned down dramatically with the US subprime home-loan crisis from last August it looked as if France would be spared a severe correction, since recent French practice, and the lessons of the property crisis in the 1990s - it was argued - meant that banks had maintained a high level of prudence in lending.

But now property experts are wondering openly, how far and for how long the market will go down, and they also expect to see a sharp fall in the number of estate agencies which mushroomed during the boom.

Signs of a marked cooling have been emerging for months, and on Friday the national statistics office INSEE said bluntly: “France, too, is now experiencing a real-estate market downturn.

Consumer Spending in May

On the other hand French consumer spending on manufactured goods increased more than economists expected in May as shoppers bought more cars and clothes. Such spending, which accounts for around 15 percent of the French economy, rose 2 percent from April, when it fell a revised 0.9 percent, according to data from Insee, the national statistics office. The May increase was the first in three months.

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