Debt crisis saps French business, consumer morale

Tuesday, 27 September 2011 00:00 - - {{hitsCtrl.values.hits}}

(Reuters): Europe’s debt crisis hit French business and consumer morale harder than expected in September, prompting the country’s main business lobby to call for decisive political action to reassure investors and households as economists warned of stagnation.

The INSEE statistics office’s index of sentiment in France’s manufacturing sector, often seen as a bellwether for future industrial output, fell to its lowest level since August 2010 and slipped below its long-term average.

After a strong start to the year, French growth stalled in the second quarter and the Bank of France forecasts the economy is still stagnant, with a forecast of just 0.1 percent GDP growth in the three months to end-September.

Mirroring a drop in a purchasing managers’ index published on Thursday, INSEE’s index of business confidence plunged in September to 99 points, from 105 in the last reading in July, and below economists’ average expectations of 102.

A broader, although less closely followed, overall business climate index tracked the decline with the retail sector suffering a particularly sharp fall amid growing consumer jitters.“We are on the brink of a downturn if there aren’t any clear political decisions at the European and even G20 level,” Laurence Parisot, head of the French employers’ association MEDEF, told RMC radio. A separate household confidence survey from INSEE showed the office’s consumer sentiment indicator fell to its lowest level since February 2009, when France and much of the developed world was mired in the worst recession since World War Two. Governments across Europe have announced further austerity plans in recent weeks in an effort to convince volatile markets that they are serious about whipping public finances into shape, but they are walking on a tightrope between cutbacks that please markets and cutbacks that damage confidence and economic growth.The survey suggested that French consumers, traditionally the motor for the euro zone’s second-biggest economy, are buckling down for tougher times after the number of jobless people rose in July to the highest level in more than 11 years. The household confidence indicator dropped in September to 80 from 82 in August, as consumers’ concerns about unemployment surged to the highest level since June 2010. Economists had forecast a recovery to 84.