French business confidence falters in December

French company bosses were less confident about their prospects in December, data showed on Friday, adding to signs that the economic recovery is fragile. Business morale fell to 89, national statistics office INSEE said, undershooting expectations for 91. That followed an upwardly revised reading of 90 in November.
"It's a pretty disappointing survey. We'd just started the recovery and you see the level the sentiment indicator is at," said Olivier Gasnier, economist at Societe Generale. "We've never seen the recovery stopping at such low levels. That's what's so worrying. It looks like there's no real support to demand once you take away direct subsidies."
From January 1, the government will phase out a car scrappage subsidy that has helped manufacturing and consumption this year. The car industry, which accounts for about 10 percent of manufacturing in France and about 2 percent of gross domestic product, is worried that sales will tumble once direct support is withdrawn.
Bosses surveyed by INSEE said the outlook for orders had worsened. Foreign order books fell to -58 from -51 in November. The personal outlook for production sank to -7 from -4. "Industrial companies are expecting a slight slowdown in activity in the next few months," the report said.
In a quarterly report on Thursday, INSEE said a weak economic recovery would take hold in the coming quarters driven by consumer spending but businesses would continue to struggle. "The central question is the lasting quality of the recovery," said Sandrine Duchene, head of INSEE's forecasting department at the release of the report.
"The message driven home in the current surveys is rather of a slowdown in activity than an acceleration." The Markit/CDAF flash composite managers' index (PMI) which combines data from the services and manufacturing sectors also slipped in December. Economists said the reports raised questions about the strength of the recovery in 2010.
"Growth in the fourth quarter will be held up by private consumption and car sales but we've got an outlook here which is not too encouraging for the start of next year," said Gasnier. INSEE is expecting the euro zone's second largest economy to grow 0.4 percent in the fourth quarter and in the first quarter of 2010, slowing to 0.3 percent in the second quarter.