European Economies: French Confidence Holds Near Five-Year High

European Economies: French Confidence Holds Near Five-Year High
By Gabriele Parussini
Nov. 24 (Bloomberg) -- French business confidence held near a five-year high in November on lower oil prices and declining unemployment as executives anticipate a fourth-quarter pickup in economic growth.
Insee, the Paris-based national statistics office, said today its index of sentiment remained at 107 this month after October's reading was revised down to 107. The gauge reached 109 in April, the highest since March 2001.
The durability in the economy's standstill in the third quarter was temporary. In Germany, France's largest trading partner, a gauge of business confidence rose yesterday to a 15- year high. The expansion in the euro region this year may reach 2.6 percent, the fastest in six years, before slowing to 2.1 percent next year as interest rates and the euro rise, the European Commission estimates.
``The main boost to confidence is from European growth and the exceptional news from Germany,'' said Maryse Pogodzinski, an economist at JPMorgan Chase & Co. in Paris. ``The fall in oil prices is doing the rest.''
A decline in oil prices from a record reached four months ago helped cut companies' costs and put more money in consumers' pockets. Crude oil traded below $59 a barrel yesterday, down from $78.40 on July 14.
A surge in the euro may restrain growth. The euro surged to a 20-month high of $1.3109 at 3:11 p.m. in Paris. The currency has gained 10.7 percent against the dollar this year. It has also risen 9 percent against the Japanese yen the past nine months, reducing euro-region exports' competitiveness.
`Measured' Optimism
``Companies' optimism remains measured,'' said Alexandre Bourgeois, an economist at Natixis in Paris, who expects the European Central Bank to raise interest rates to 4 percent in 2007. ``The euro remains quite high and there's a prospect of a global slowdown next year.''
As French industrial production fell 0.1 percent in the third quarter after a decline of 0.9 percent in September, with carmakers cutting production by 3.1 percent, Prime Minister Dominique de Villepin said Nov. 22 he will present a plan to support the country's struggling auto industry. He's already announced 145 million euros ($189 million) in subsidies to companies in the aviation industry.
With five months before the presidential elections in France, the government is counting on a strong economy to sustain the candidate of the ruling Union for a Popular Movement party, who will probably be Interior Minister Nicolas Sarkozy.
`Very Strong' Growth
Finance Minister Thierry Breton said last week he expects a ``very strong'' fourth quarter, with growth between 0.6 percent and 0.8 percent. He reiterated a forecast of 2 percent to 2.5 percent expansion for both 2006 and 2007.
Consumers in France helped sustain the economy in the third quarter as unemployment fell to 8.8 percent, a five-year low. The economy expanded 1.2 percent in the second quarter, the fastest pace since 2001, before grinding to a halt between July and September.
Morgan Stanley, Goldman Sachs Group Inc. and Unicredit SpA all raised their ECB forecasts this month. They expect the ECB's benchmark rate to reach 4 percent by the end of 2007. The bank is set to raise the rate to 3.50 percent next month on concern the economic expansion will fuel wage demands and lead to more persistent inflation.
``Things are going extremely well,'' Air France-KLM Chief Operating Officer Pierre-Henri Gourgeon told reporters yesterday after Europe's biggest airline reported a 26 percent increase in third-quarter profit.
A gauge of sentiment on past production rose to 15 from 8 in October, while the forecast on prices increased to 9 from 5, indicating that executives think they'll be able to raise prices, the report said