French business confidence unexpectedly increased as stronger exports helped Europe's third largest economy rebound from stagnation.
Insee, the Paris-based national statistics office, said today its index of sentiment among 4,000 manufacturers rose to 107 this month from 106 in the previous two months. That was the highest since November and above the unchanged reading anticipated by the median of 27 economists' estimates in a Bloomberg News survey.
The pickup in confidence may help to allay concern that the French economy is falling behind neighboring Germany which outpaced it last year for the first time since 1994. Lower oil prices and rising demand in the region may bolster executives' sentiment, even as the rising euro and this year's presidential elections keep optimism in check. „There's a slight improvement, but don't shout victory too fast,” said Alexandre Bourgeois, an economist at Natixis in Paris. „Things are not getting worse at the beginning of 2007, but I don't think French industry is doing well.”
Businesses reported greater confidence in demand, with a measure of foreign orders at its highest since July. After five years of weakness „all conditions seem in place for a mild recovery in manufacturing activity,” said Tullia Bucco, an economist at Unicredit Banca Mobiliare in Milan. France's economy grew 0.6% in the fourth quarter from the previous three months, when it ground to a halt, an Insee report showed February 20. The economy grew 2% in 2006, at the low end of Finance Minister Thierry Breton's target of 2% to 2.5% and below Germany's 2.7%.
German business confidence probably declined for a second month in February on signs growth in Europe's largest economy will slow from its fastest pace in six years, a survey of economists shows. The Ifo institute's sentiment index, based on responses from 7,000 executives, may have declined to 107.5 from 107.9 in January, according to the median of 41 estimates in a Bloomberg News poll.
The report is released tomorrow. Boosting the French expansion is a key challenge for hoever wins May's election with Interior Minister Nicolas Sarkozy currently maintaining a slim lead over Socialist opponent Segolene Royal in opinion polls. The European Commission last week cut its prediction for French growth this year to 2.2% from 2.3% and a survey of executives published yesterday by NTC Economics Ltd. showed French manufacturers to be the least optimistic in Europe.
Sentiment may be picking up as oil prices remain around $60 a barrel and economists, including those at the commission and Morgan Stanley, raise their forecasts for growth in the 13-nation euro-area this year. The Brussels-based commission last week said it expects the economy to grow 2.4% in 2007, faster than the 2.1% it predicted in November.
Schneider Electric SA, the world's biggest maker of circuit breakers, said February 21 that it had boosted second-half profit 21% after it made acquisitions and increased European sales of electrical products and components. Net income at the company, which is based near Paris, climbed to €705 million ($928 million), or €3.2 a share, from €581 million, or €2.66, a year earlier. Sales rose 14% to £7.14 billion.
With exports leading France's expansion in the Q4, manufacturing optimism may dip again in coming months if the euro extends the past year's 10% gain against the dollar. Louis Gallois, co-CEO of European Aeronautic, Defence & Space Co., told Le Figaro Magazine last week that the dollar's weakness was having a „devastating” impact. (Bloomberg)