Manufacturers' confidence in France, the second-biggest economy in the euro region, unexpectedly climbed in September to the highest in more than three years, buoyed by rising consumer spending and exports. An index based on a survey of about 2,500 companies rose to 106, the highest since April 2001, up from a revised 105 in July, Paris-based statistics office Insee said. No survey was done in August. Economists polled by Bloomberg News expected a reading of 105, according to the median of 25 forecasts. ``Global demand is remaining relatively solid this quarter,'' said Maryse Pogodzinski, an economist at JPMorgan Chase & Co. in Paris, before the report. ``Household goods are doing well because of the real estate industry, which is doing very, very well.''
An increase in exports and household spending boosted sales at companies including Eiffage SA, a builder, and LVMH Moet Hennessy Louis Vuitton SA, the world's largest luxury-goods company. Paris-based LVMH reiterated this month its forecast for ``significant'' growth in full-year operating profit. ``There's very strong growth in the U.S., whereas in Europe it's more limited and linked to tourism,'' LVMH Chairman Bernard Arnault said in an interview.
French Growth
The government also reported that consumer confidence climbed in September to minus 17 from minus 23. Unemployment rose by 32,000 in August, driving the jobless rate to 9.9 percent from 9.8 percent. The government revised second-quarter gross domestic product growth to 0.7 percent from 0.8 percent. European bonds fell after the business confidence gained. The 4 percent German bond due October 2014 fell 0.11, or 11 euro cents per 1,000 euro ($1,233) face amount, to 99.54 at 9:03 a.m. in Paris, according to JPMorgan Chase & Co. France will grow 2.7 percent this year, outpacing Germany and Italy for a seventh year, thanks to consumer spending, construction, and corporate investment, the Paris-based Organization for Economic Cooperation and Development predicts.
Housing Market
A real-estate market on the rise may be helping boost confidence. French housing starts rose 13.1 percent in the three months ended in August from a year earlier as interest rates near record lows and a shortage in homes to rent underpinned demand. ``It seems likely that house price inflation will persist for some time,'' said Michael Taylor, an economist at Merrill Lynch & Co. in London in a note to investors. ``The wealth effect from higher house prices could trigger a faster trend rate of consumer spending through a lower savings ratio.'' The 52 percent rise in oil prices this year is denting corporate profits at companies such as Valeo SA and may crimp growth. Europe's third-largest car parts maker said last week rising prices for steel, oil and other commodities will reduce its operating profit margin in this half.
A separate index in today's business confidence report on total orders in French manufacturing rose to minus 11 in September from minus 12 in July. An index of foreign orders alone climbed minus 5 from minus 6. An index of executives' expectations for their own prices rose to 7 from minus 2 in July, today's report showed. The impact of rising raw material prices in the second half will be ``slightly higher'' than in the first half, when the operating profit as a percentage of sales was cut by 0.2 percentage points, said Thierry Morin, chief executive officer of Paris-based Valeo. Mouvement des Entreprises de France, the country's largest business federation, has said a planned increase in the minimum wage and a rise in a business tax which funds vocational training may crimp growth.
`Brake' on Growth
``The new increase in levies may put a brake on the economic recovery and employment,'' Medef said in a statement after the 49- year-old finance minister, presented the 2005 budget. France's total tax burden will climb to 43.7 percent of gross domestic product in 2005 from 43.6 percent this year as the government lifts some taxes to cut its deficit. The Bank of France expects the economy to grow 0.6 percent in the third quarter, down from the first two quarters of the year, suggesting oil prices are taking their toll on economic growth. Consumer spending on manufactured goods such as cars, mobile phones and furniture rose 0.5 percent in August after having dropped 2.9 percent in July. The Insee report also showed the outlook for production at the executives' own companies jumped to 16 in September from 9 in July. An index on production in the past three months slid to 9 from 3 in July. An index of general production prospects, rose to a reading of 12 from 3 in July.
Insee surveys French manufacturers in the first three weeks of each month except August, asking about their own production and that of the industry, overall orders, exports, inventories and prices. Its business confidence index, which is adjusted for seasonal variations, peaked at 122 in June 2000. The low was 75 in June 1993, when the economy was last in recession. ///www.bloomberg.com