French manufacturers' confidence slipped from a three-year high in May, the first decline in 11 months, as equipment and machinery makers in Europe's third- biggest economy reported a slowdown in orders from abroad. An index of manufacturing sentiment, based on a survey of 2,500 companies, fell to 104 from a revised 105 in April, statistics office Insee said. Economists had predicted a reading of 104, according to the median of 23 forecasts in a Bloomberg News survey. An index of export orders fell to a three-month low.
``It's a sign, perhaps a bit exaggerated, that some companies aren't really benefiting from the global economic recovery,'' said Nicolas Sobczak, an economist at Goldman Sachs & Co. in Paris. He expects French economic growth to slow in the second quarter. Together with a drop in business confidence in Germany and Italy, the French report suggests that growth in the economy of the 12 nations sharing the euro may ease this quarter from the fastest pace in three years in the first three months. France's economy expanded 0.8 percent in January through March, outstripping the 0.6 percent growth for the euro region. France's economic recovery was supported by booming consumer demand and investment while exports slowed, the opposite to the components driving growth in Germany, Europe's biggest economy. French consumer spending rose 1.1 percent, while household demand in Germany failed to grow for a fourth consecutive quarter.
`Brighter Stars'
``France remains one of Europe's brighter stars,'' said David Page, an economist at Investec Bank U.K. Ltd. in London. ``The recovery seems to be a few steps further on in France than in Germany and Italy.'' France's benchmark CAC 40 index rose 0.8 percent to 3688.39 at 10:15 a.m. in Paris and the euro held gains against the dollar after the confidence report was released, rising 0.3 percent to $1.2143 from $1.2106 late yesterday in New York. Business confidence fell in Germany, Italy and Belgium in May, reports this week showed. The European Commission releases its monthly surveys of consumer and business confidence for the euro region tomorrow at 11 a.m. in Brussels. Economists predict both those indexes remained unchanged in May. The European Central Bank has reason ``to be cautiously optimistic'' about an economic recovery in the euro region, ECB council member Klaus Liebscher said in a speech in Vienna today.
Export Drop
Insee's index measuring export orders dropped to minus 16 from minus 2. Behind the drop in the export index was a sub-index for equipment and machinery makers that sank to minus 31 from 5 in April. Equipment and machinery makers include Alstom SA and European Aeronautic Defence & Space Co. Exports in France increased just 0.3 percent in the first quarter, compared with growth of 4.6 percent in Germany. The UIMM manufacturers' association said it's concerned about the slowdown.
``At a time when global economic growth has reached levels not matched for years, it's deeply worrying that the economy isn't benefiting,'' said UIMM in a monthly newsletter to members, which include carmaker PSA Peugeot Citroen and steelmaker Arcelor SA. The Organization for Economic Cooperation and Development expects an 8.6 percent increase in global trade this year, accelerating to 10 percent in 2005. This year, the OECD forecasts the U.S. economy will expand by 4.7 percent, Japan's by 3 percent and China's by about 8 percent. Such a pace of growth contrasts with the 1.6 percent expansion the Paris-based organization projects for the dozen countries sharing the euro this year.
Oil Risk
The general outlook for production rose to minus 5 from minus 9 in April, the report today showed, suggesting companies are more confident about general economic prospects. A separate index measuring total orders declined to minus 15 from minus 13 in April, suggesting that orders from France helped limit the slump. An index for past production rose to the highest in three years. Another risk to the recovery in France and the euro region is the surge in oil costs. The price of a barrel of benchmark Brent crude has climbed 26 percent since April 2, threatening to increase production costs and crimp consumer spending.
``In Europe we're waiting for a recovery and this certainly doesn't help,'' said Henri Proglio, chief executive of Veolia Environnement SA, the world's largest water company, speaking in Paris earlier this month when presenting first-quarter earnings. The Brussels-based International Energy Agency said earlier this month that a $35 a barrel oil price would cut growth in the world's 30 largest economies by about 0.4 percentage point, raise inflation by 0.5 percentage point and increase unemployment. France's inflation rate rose to a four-month high of 2.4 percent in April as rising oil and fresh-fruit prices lifted living costs for a ninth month, the government said Tuesday. A separate index on executives' expectations for their own prices rose to zero from minus 5 in April. ///www.bloomberg.com