The French may not have an entry in the World Cup, but they can take solace in the signs that their economy is performing better than was expected a few months ago.

The latest news came from the government's survey of businesses. The percentage of companies seeing improvement in their industry's prospects rose to 32% in June (chart). At the beginning of the year, the percentage of pessimists outnumbered the optimists by 9%. Growth prospects for the car and semifinished-goods sectors held up in June, and they brightened further in the capital-goods industries. Only the consumer-goods sector did not post an improvement.

What's lifting corporate spirits? Healthier demand. Even consumer spending on manufactured goods in May was up 4.2% from a year ago, compared with a 4.5% decline in the previous 12 months. So, too, exports are picking up, rising 5.6% in the first four months of 1994 from year-ago levels. Exports to the rest of Europe have been helped by the fact that the franc has not strengthened as much as the German mark, allowing French manufacturers to maintain price competitiveness inside the Continent.

In addition, benign inflation enabled French interest rates to fall sharply last year, a key ingredient in the stronger tone of the economy. Consumer prices are up just 1.7% over the past year. In 1993, French long-term interest rates dropped by 2.2 percentage points--one point more than German yields.

The rate drop came at a price, though. In the first quarter, some 110 billion francs deserted French long-term securities--57% of them pulled by nonresidents stalking fatter yields.

As in other nations, French long rates have jumped back up, but they may have to stay high in order for France to finance its huge government deficit, which has risen to 5.1% of the gross domestic product in 1994's first half, from 3.7% in 1992. Even so, the government is set to boost spending in the second half to buoy the economy.

However, trade unions have called for even more stimulus to ease France's record 12.3% jobless rate. That rate will not fall any time soon, though, because economic growth in France, as in other industrialized nations, will come more from productivity gains than from new jobs.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE