French business mired in gloom

French business leaders and industrialists are deeply gloomy about their business prospects, official data showed yesterday, but some analysts suggest that the outlook might not get much worse. Overall business sentiment in Germany, the second-biggest euro zone economy, has fallen to the lowest level for three years, figures released by the national statistics office INSEE showed. But the institute's barometer of sentiment in manufacturing industries was stable at 90 points in September, the same level as in August though still well below the long-term average of 100 points. INSEE's latest reading was slightly better than the 89 points it calculated in July however. Overall, the picture was a rather gloomier, with the general business climate turning in a one-point monthly drop to 86 points, the lowest level since it fell to 85 in September 2009. A breakdown of that data showed stronger sentiment in the services sector, stability in manufacturing and falls in the building sector, retail and wholesale trade. Looking at the overall index, Barclays economist Fabrice Montagne commented that the figure "still shows no signs of stabilization or improvement." The data "confirmed the negative picture painted by the PMIs (purchasing managers' indices) last weak and the improvement in some important components (orders, expected production, investment) is still too tentative and levels way too low to call for a reversal," he added. Montagne noted however that "surveys have been somewhat overly pessimistic in previous quarters to predict GDP (gross domestic product) and should therefore be taken with a pinch of salt." On Monday, the German economic institute Ifo said that its closely watched survey of the business climate in the biggest euro zone economy dropped unexpectedly in September for the fifth month running to 101.4 points. Analysts had expected an unchanged reading, hoping businesses would be more bullish after the European Central Bank announced unprecedented action earlier this month to stem the euro zone crisis. "The companies surveyed are again less satisfied with their current business situation. They also expressed greater pessimism about the future," said Ifo President Hans-Werner Sinn. INSEE said that bosses in the manufacturing sector reported that their past activity had fallen sharply but that their order books were picking up. Orders placed from abroad were stable but not strong. Industrialists were gloomy about the outlook for production, reporting that their activity would continue to be flat in coming months, INSEE said. Their view of future prospects was close to extremely low levels recorded in 2009. Housing Ministry figures showed meanwhile that the rate of new French home construction fell by 10.3 percent from June to August compared with the same period of last year. The number of building permits issued had also fallen, by 1.2 percent in the same period. Economics professor at Paris-Ouest university, Michel Mouillart, an expert on housing, told AFP: "For a quarter of a century and since the beginning of monthly statistics, the figure for the beginning of construction of apartments has never been so low." At the Italian bank UniCredit, economist Tullia Bucco felt that the latest manufacturing index showed "that momentum in manufacturing broadly stabilized at the end of the third quarter, portraying a more benign picture than the one conveyed by the preliminary manufacturing PMI. That had fallen sharply from 46.0 to 42.6 points, Bucco noted. BNP Paribas economist Helene Baudchon estimated that "no rebound in growth will take place without a return in confidence first" and added: "That is why the short-term perspective remains negative." But Baudchon also noted that weak French business and consumer confidence had had only a moderate effect on activity so far, and forecast "a negative effect of limited size and duration."