French Sentiment, Factory Output Rise, Point to Rebound: Economy

French business confidence climbed for the first time this year last month and factory output unexpectedly increased in July, suggesting the euro region’s second-largest economy may regain some strength.

Sentiment among manufacturing executives rose to 93 from 90 in July, the Bank of France said today. Industrial production increased 0.2 percent in July from the previous month, when it stalled, a separate release showed. Economists in a Bloomberg News forecast had forecast a decline of 0.5 percent, according to the median of 23 estimates.

The increases are among the first signs of a possible recovery in France, where President Francois Hollande said late yesterday that growth will almost grind to a halt this year and be less than 1 percent in 2013. With unemployment at a 13-year high, Hollande said he wants to accelerate labor market reform such by cutting payroll taxes while giving himself two years to fix the nation’s economy.

“The numbers are going in the right direction but their absolute level remains very low,” said Dominique Barbet, an economist at BNP Paribas SA in Paris. “There’s no recession but no growth either.”

The Stoxx Europe 600 Index (SXXP) fell 0.2 percent at 12:57 p.m. in Paris, following its biggest weekly gain in three months. Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The euro traded at $1.2784, down 0.3 percent on the day.

Economic Contraction

The Bank of France said the industrial sentiment reading, along with a similar survey of service industry executives that also improved in August, point to a 0.1 percent contraction for the French economy in the third quarter. French gross domestic product stalled in the three months through June.

Industrial production fell 3.1 percent in July from a year earlier, Paris-based statistics office Insee said today. Manufacturing output rose 0.9 percent in July from June.

“Order books have firmed up and inventories have ebbed slightly,” the Bank of France said. Yet “production capacity hasn’t progressed and remains below its long-term average.”

European investor confidence rose in September after European Central Bank President Mario Draghi pledged last week to buy government bonds of distressed nations such as Italy and Spain in tandem with Europe’s rescue fund, according to an index published by the Sentix research institute. A gauge of expectations in the euro-area’s economy also rose, it said.

China, Japan

In China, imports unexpectedly fell and industrial output rose the least in three years, signaling more stimulus may be needed after the government last week said it approved subway and road projects across the nation. Inbound shipments slid 2.6 percent in August from a year ago as exports rose 2.7 percent, the customs bureau said in Beijing today. Production increased 8.9 percent, the National Bureau of Statistics said yesterday.

Japan’s economy expanded in the second quarter at half the pace the government initially estimated, underscoring the risk of a contraction as Europe’s debt crisis caps exports, a government report showed today. GDP grew an annualized 0.7 percent in the three months through June, less than a preliminary calculation of 1.4 percent.

South Korea said it will add 5.9 trillion won ($5.2 billion) of economic support measures including extra spending and tax cuts as exports slow.

For Hollande, the lack of growth means increased pressure to find fresh-deficit reduction measures to keep a commitment to reduce France’s budget shortfall to 3 percent of GDP next year from 4.5 percent in 2012. Finance Minister Pierre Moscovici has said the government will reach those targets to keep French borrowing costs low in the face of the debt crisis.

‘No Choice’

“The government has no choice, it needs to keep its deficit promise,” BNP Paribas’s Barbet said.

Hollande said on TF1 television yesterday that the 2013 budget, due to be presented Sept. 26, will included 10 billion euros ($13 billion) in spending curbs, 10 billion euros in corporate taxes and 10 billion euros in levies on individuals. State spending won’t increase next year, he said.

Cutting the 2013 growth forecast to 0.8 percent from 1.2 percent, Hollande also said unions and business leaders need to find a way to reduce payroll taxes by year-end or his government will act to boost French competitiveness.

“If this historic compromise is reached by year end, this reform will be given the force of law,” he said. “But if the partners can’t agree, then I’m sorry, but then the state will assume its responsibilities.”

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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