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French Factory Confidence Drops, Heightening Recession Risk

French industrial confidence unexpectedly fell in January, the latest indication that Europe’s second-largest economy may be edging closer to a recession.

Sentiment among factory executives fell to 86 from 89 in December, national statistics office Insee said today in a statement from Paris. Economists had expected a reading of 90, the median of 22 forecasts in a Bloomberg News survey showed.

The decline brings the confidence reading close to the three-year low of 85 reached in October and underlines the challenge facing President Francois Hollande as he seeks simultaneously to cut France’s budget deficit and to revive its economy.

The “manufacturing recovery in November and December was short-lived,” said Dominique Barbet, an economist at BNP Paribas in Paris. “This fits with our forecast of another quarter of GDP decline in the first quarter after the decline we have forecast for the fourth quarter.”

Joblessness is at its highest since 1998 and climbing as companies including PSA Peugeot Citroen SA, Renault SA and Alcatel-Lucent cut thousands of jobs. Gross domestic product probably fell 0.2 percent in the fourth quarter, Insee estimated on Dec. 20. Insee will publish an update of its fourth-quarter GDP estimate on Feb. 14.

The French economy is expected to contract 0.1 percent in the current quarter after shrinking an estimated 0.3 percent last quarter, according to the median of nine forecasts in a Bloomberg survey published on Jan. 17. That suggests France has slipped into a recession for the first time since 2009.

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