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French Business Sentiment Weakens To Three-Year Low

October 23, 2012 RTTnews
French industrial confidence deteriorated to the lowest level in more than three years in October as weakening external demand, especially in the crisis-stricken Eurozone, continued to weigh on the country's exports, latest data showed Tuesday.

The industrial confidence index dropped to 85 in October, after stabilizing at 90 in September, statistical office Insee said. The latest reading was the lowest since August 2009, and far below the long-term average of 100. Economists had forecast the index to remain unchanged In October.

Sentiment among French construction firms remained unchanged during the month, with the relevant indicator staying steady at 94. Meanwhile, confidence in the retail sector improved modestly after weakening in the previous month. The corresponding sub-index rose to 89 from 87.

Service providers were slightly less upbeat about their business conditions during the month, with the relevant index dropping to 86 from 87 in September.

The stronger-than-expected deterioration in confidence is broadly in line with the latest purchasing managers' survey. The PMI data for September showed that the French private sector shrank at the steepest rate since March 2009 as the contraction in output and new orders accelerated.

The French economy has so far escaped a recession. Gross domestic product remained flat for the third straight time in the quarter ended June. Meanwhile, the Bank of France forecasts a 0.1 percent contraction for the third quarter.

Insee predicts the economy to grow just 0.2 percent in 2012, slower than the government's forecast for a 0.3 percent expansion. As the government aims to cut its budget deficit to 3 percent of the GDP next year, the risk of economy falling into recession has increased.

The International Monetary Fund also projects weak growth for France. GDP is estimated to grow 0.1 percent this year before accelerating to 0.4 percent next year.
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