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French Business Confidence Stalls, Factory Output Drops: Economy

French Business Confidence Stalls
The Grande Arche de la Fraternite is seen in the business district of La Defense in Paris. Photographer: Chris Ratcliffe/Bloomberg

French business confidence stagnated and factory output dropped, underlining the challenge the victor in the country’s presidential election will face in reviving economic growth.

A gauge of sentiment among factory executives was unchanged at 95 in March after dropping in February, the Bank of France said today. Manufacturing production fell 1.2 percent in February, a third month of declines, the national statistics office, Insee, said in Paris.

The data show how Europe’s second-largest economy is struggling to grow in the face of the region’s sovereign debt crisis, reducing the room for maneuver of President Nicolas Sarkozy and his Socialist challenger, Francois Hollande, as they seek to woo voters in the final weeks of the election campaign. The Bank of France said its surveys suggest that gross domestic product didn’t expand in the first quarter.

“The general message is this: the French economy is practically stalled,” said Michel Martinez, an economist at Societe Generale SA in Paris. “France doesn’t have the problems of its southern neighbors, but its industry remains in recession and we remain very far from a classic recovery scenario.”

The lack of growth at least partly reflects the impact on demand of budget cuts in neighboring Italy and Spain, as well as deficit-reduction efforts in France.

Deficit Pledge

Spanish Prime Minister Mariano Rajoy is stepping up efforts to reassure investors he can bring the country’s deficit under control and prevent Spain from becoming the fourth euro-area country to require a bailout. Rajoy met with his health and education ministers yesterday to discuss cuts of more than 10 billion ($13 billion) as the government reiterated its pledge to trim borrowing to 3 percent of GDP next year.

European stocks fell to a two-month low and Asian equities retreated on concern growth is slowing after China’s imports missed economists’ forecasts. The Stoxx Europe 600 Index decreased 1 percent as of 10:14 a.m. in London as trading resumed after most European markets were closed yesterday. The MSCI Asia Pacific Index lost 0.3 percent. Gold climbed 0.5 percent.

China reported an unexpected trade surplus last month as import growth trailed forecasts, highlighting the risk of a deeper slowdown in the world’s second-largest economy.

Inbound shipments rose 5.3 percent, the customs bureau said today, below the 9 percent median estimate in a Bloomberg News survey. Exports increased 8.9 percent from a year earlier, more than forecast, leaving a trade surplus of $5.35 billion, compared with a median projection for a $3.15 billion trade deficit.

German Exports

In Europe, Germany also reported an unexpected increase in exports driven by overseas demand. Exports rose 1.6 percent from January, when they gained 3.4 percent, the Federal Statistics Office in Wiesbaden said today. The figures are seasonally adjusted.

The German performance represents a model that Sarkozy has repeatedly held out as an example for France, while using the fate of Spain as an example of what could happen if the country doesn’t pursue economic reforms such as his proposal to cut social charges on payrolls by raising sales tax.

“It’s worked wonderfully in Germany,” he said on April 5. At the same time, “Spain is today in the midst of a crisis of confidence,” he said.

Hollande responded by saying that Sarkozy was in no position to give lessons on the crisis at the end of a five-year mandate in which jobless claims have jumped to a 12-year high and France’s debt load has increased.

French voters will choose between 10 candidates in the first round of the election April 22, and the two front runners will face off on May 6.

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