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French business and consumer confidence hit by European debt crisis

Bank of France reports the economy is still stagnant, with GDP growth of just 0.1% in the three months to 30 September

Concerns over the financial stability of French banks and the country’s slowing economy hit business and consumer morale last month and prompted the country’s main business lobby to call for decisive political action to reassure investors and households.

Consumers registered their lowest confidence levels since February 2009 when France and much of the developed world was mired in the worst recession since second world war.

The survey by the statistics office Insee, which came amid a flurry of data showing a sharp slowdown in economic activity and confidence across the business sector, suggested that French consumers – the motor for the eurozone’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.

A separate Insee 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 reports the economy is still stagnant, with GDP growth of just 0.1% in the three months to the end of 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.

“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.

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 their efforts to appease international investors appears to be seriously harming economic growth prospects.

ABN Amro economist Joost Beaumont said: “In general, these reports show that the economy is now flirting with a recession, like the eurozone as a whole, and they once more show the need for policymakers to take bolder steps to contain the crisis.”

France’s government slashed its forecast for annual economic expansion last month to 1.75% for 2011 and 2012 – from 2% and 2.25% respectively – as it unveiled a €12bn (£10.5bn) package of savings to keep its deficit reduction targets on track.

However, many private economists are forecasting French growth will be weaker.

Michael Taylor at Lombard Street Research said there are worrying signs that companies were preparing for a prolonged slowdown. He said a build up of inventories showing the difficulties businesses had shifting existing stock. A fall in foreign orders was being followed by a decline in production, he said.

“With around half of French exports going elsewhere in the eurozone weakness in French manufacturing is in large part a reflection of the wider malaise in the euro area,” he said.

“For now the services PMI is holding up at 52.5, keeping the composite PMI above 50. But services too have slowed quite sharply in recent months,” he added.

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