French Business Sentiment and Spending on Manufactured Products Fall

French business confidence fell in February to its lowest level in 13 months and spending on manufactured goods laos fell in January as accelerating inflation and slowing economic growth took their toll across the European economy. Insee, the Paris-based national statistics office, said today its index of sentiment stood at 107, the lowest since January 2007 and down from last month's revised 108. Spending on manufactured products dropped by 1.2 percent, the most since September 2006, Insee said in a separate report. Both these figures were worse than most economists had been expecting.

Also in its latest interim forecast the European Commission yesterday cut the growth outlook for France to 1.7 percent from 2 percent in November.

Accelerating inflation, which reached 3.2 percent last month, the fastest pace in at least 12 years, is also weighing on confidence as it squeezes spending by consumers, who account for the biggest part of the economy.



Purchases of manufactured goods, which contribute about 15 percent of gross domestic product, fell 1.2 percent from December. Rising gasoline and food prices and higher borrowing costs dented households' purchasing power.

The January spending drop was led by cars, which slipped 8.7 percent as consumers had bought more than the normal number of automobiles in December in order to beat a "green tax" on high-polluting vehicles that came into effect on Jan. 1. The January rate compared with an increase of 6.7 percent in December. On the other hand, purchases of clothes and leather rose 2.3 percent in January, helped, it seems, by post-holiday discounts.


Still, France may yet weather the coming storm rather better than Spain, Italy and Germany, as record-low unemployment and President Nicolas Sarkozy's 9 billion euros ($13.2 billion) worth of tax cuts buffer the economy against the slowdown. French growth may outpace Germany this year for the first time since 2005, the commission forecast, yesterday, and Prime Minister Francois Fillon reitereated that he hasn't reduced the government's forecast for growth of about 2 percent this year. Personally all this seems much more reasonable to me than some of the other "official" forecasts we are getting at the moment, since France didn't have so many excesses (as eg Spain) on the upside, she may well not feel the contraction so sharply on the downside, and having a relatively younger population and a more stable population pyramid than either Italy or Germany, France has obviously much more short term leeway on the fiscal side, although in the medium term serious structural reform to the health and pensions systems are obviously needed.

France Inflation January 2008

French inflation accelerated in January to the fastest pace in at least 12 years, led by higher food and energy costs.

Consumer prices climbed by an annual 3.2 percent, up from 2.8 percent in December, based on European Union-harmonized methods, Insee, the national statistics bureau, said today in Paris. That's the fastest since 1996, when Insee began reporting the data. Prices were unchanged from November.




In France, energy costs climbed 12.3 percent in January on the year, while fresh food costs jumped 3.3 percent and overall food costs added 4.4 percent. Tobacco prices rose 6.3 percent.

Inflation in the euro region quickened to 3.2 percent in January, the fastest in 14 years. The International Monetary Fund yesterday forecast consumer prices would increase an average 2.3 percent in France this year compared with 1.6 percent last year.

France GDP Q4 2007

The economic expansion in the euro area's two largest economies cooled in the fourth quarter, marking the start of a slowdown that may deepen in 2008. Gross domestic product in Germany, Europe's biggest economy, rose 0.3 percent from the third quarter, when it increased 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Expansion in France also eased to 0.3 percent, from an 0.8 percent rate in the second quarter according to INSEE.



In France, consumer-spending growth eased to 0.4 percent in the fourth quarter from the 0.8 percent in the third. Corporate investment rose 1 percent, after 1.1 percent in the third. Exports fell 0.6 percent after having risen 1.3 percent in the third quarter. So the trade deficit is definitely acting as a drag on growth.



So the expansion in the eurzone economies is losing momentum as a surge in the euro against the dollar makes exports less competitive abroad just as the U.S. economy hovers near a recession and households grapple with faster inflation. The question is, since the French economy never went up as far as the German one during the recent upswing, may we expect it to resist falling so far down during the downswing? This is my impression, but, of course, we are all about to see. Certainly with a relatively younger population than Germany, France may have more leeway on the fiscal front to adopt counter-cyclical policies, much as this may be frowned on from Brussels and Frankfurt. Clearly there is considerable volatility in the quarter on quarter data, but over the longer haul may Frech GDP prove to be the more solid and stable of the pair?

French Industrial Output December 2007

Well, industrial output in France, while struggling, does continue to some extent to resist the downward trend. Industrial production in France rose in December, helped by gains in auto manufacturing and energy, helping avoid a decline in the quarter.

Production at factories, utilities and mines, which account for 15 percent of the economy, added 0.7 percent to output from November, when it dropped strongly, by a revised 1.7 percent, according to the national statistics bureau, Insee, earlier today. Obviously after Novembers sharp fall, some revound was only to be expected.




Industrial output in what is the eurozone's second-largest economy has fallen in six of the last 12 months, highlighting the way companies' are struggling to maintain competitiveness in the face of the high euro. Evidence for import substitution is everywhere, and the trade deficit widened to a record in December. Year on year total industrial output - including energy - rose 2.4 percent.

The auto-production increase followed a surge in car sales. December car and light-truck sales jumped 17 percent to 220,094. Car production added 3.5 percent in December. Production of consumer goods, though, slumped for a second month, declining by 0.4 percent in December following a 1.9 percent plunge in November.

France Trade Deficit December 2007

France's trade deficit widened in 2007 to the biggest ever after oil prices and the euro climbed to records in the past year, the Trade Ministry said today.



The gap widened to a record 39.2 billion euros ($57.3 billion) from 2006's revised deficit of 28.2 billion euros, according to a ministry statement. The last annual trade surplus was 1.1 billion euros in 2003.


The December shortfall was 4.3 billion euros compared to a revised 4.6 billion euros in November. Exports fell to 33.1 billion euros from 33.2 billion the previous month as shipments to the Americas dropped to 2.8 billion euros from 3.1 billion euros. Imports were 37.4 billion euros, compared with 37.8 billion.

The Trade Ministry said Airbus SAS shipped 27 planes in December for 1.4 billion euros, up from 21 planes in November for 895 million euros.

France Services PMI January 2008

Europe's service industries grew at the weakest pace in more than four years in January, as the possibility of a recession in the U.S. weighs on the European expansion. Royal Bank of Scotland Group Plc's services index dropped to 50.6, the lowest since July 2003, from 53.1 in December. A reading above 50 indicates growth.

The slowdown presents a real headache for the view of European Central Bank that the euro region is strong enough to cope with a cooling U.S. economy and that inflation concerns prevents them from following the Federal Reserve into monetary easing. In the U.S., which is the second biggest destination for euro-area exports, the Fed eased monetary policy by the most since 1990 last month, to bolster the economy.



The euro fell as much as 1.1 percent to $1.4671 and traded at $1.4683 at 11:32 in Frankfurt. The Dow Jones 600 Stoxx index extended declines after today's figures, falling as low as 326.33 from 329.13 yesterday.

The national indexes fell across the board with Germany's service industry slumping below the 50 threshold for the first time in 4 1/2 years and Spain's service sector shrinking the most since the survey began in 1999. A composite measure for the euro region fell to 51.8 from 52.7 the previous month, according to the report, which is based on a survey of purchasing managers by NTC Economics.

France was the only major eurozone economy where the services sector to some extent held its gound - although the rate of expansion is slowing. The purchasing managers index for France's services sector dipped to 56.6 in January from 58.9 in December, but continued to indicate that the French services sector is expanding reasonably strongly.

The purchasing managers index for Germany's services sector fell to 49.2 in January, indicating that the sector has entered a period of contraction, market sources said Tuesday. That compares with a reading of 51.2 in December.


The Italian services index fell to a seasonally adjusted 47.9 in January from 49.7 in December, reaching the lowest level since May 2005.

The International Monetary Fund last week cut its euro-region growth estimate by half a point to 1.6 percent, saying the turmoil in financial markets has spread to the rest of the economy. The IMF now expects the global economy to expand 4.1 percent this year, below the 4.4 percent pace projected in October.