French Business Confidence Declines to Three-Year Low

French industrial confidence fell to the lowest in more than three years as a lack of economic growth in euro-area countries weighed on exports and looming tax increases damped domestic demand.

Sentiment among factory executives declined to 85 in October, the lowest since August 2009, from 90 last month, national statistics office Insee in Paris said in a statement today. Economists had expected a reading of 90, according to the median of 15 forecasts gathered by Bloomberg News.

Germany, Europe’s largest economy and France’s biggest trading partner, may shrink in the current quarter, the Bundesbank said yesterday as at least five other euro-area economies remained mired in recession. The International Monetary Fund cut its world growth forecast this month and said there is an “alarmingly high” risk of a steeper slowdown.

“Globally the situation is not good and it’s getting worse in France’s main trading partners,” said Dominique Barbet, an economist at BNP Paribas in Paris. “At the same time you have fiscal tightening in France. This is not the time to invest.”

The French economy has failed to expand for the past three quarters and Insee predicts no growth in the second half of 2012. Having promised to cut the deficit to 3 percent of gross domestic product next year, President Francois Hollande’s government is planning to raise corporate taxes by 10 billion euros ($13 billion) in 2013.

Hollande, who was elected on an anti-austerity platform, is banking on higher taxes for two-thirds of the 30 billion euros he needs to raise to meet his budget-deficit target for next year and avoid the soaring borrowing costs in countries such as Spain and Italy. His government is trimming tax relief on interest charges and raising corporate taxes in addition to increased levies on top earners.

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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