French business morale shaken

Lower prices for French products and high unemployment is dampening morale among business leaders

PARIS, France -- Confidence among French business leaders deteriorated to a three-month low in July as prospects for a sustained recovery in the eurozone's second largest economy faded.

Company executives believe growth -- especially in the manufacturing sector -- has sputtered and they hold out little hope that the economy will pick up any time soon, the national statistics office INSEE said on Tuesday.

INSEE's business confidence index -- based on a monthly survey of 4,500 companies -- fell to 98 points in July, its lowest level since April, compared to a revised reading of 100 in the previous month. This month's number is the lowest since April and falls short of economists' forecasts of 100.8 points, according to a Reuters poll.

INSEE said its "general outlook'' index, a barometer of business confidence in the near future, dropped to a reading of minus 16 points in July, compared to minus two a month earlier.

"The rebound is very slow, gradual and uncertain,'' Emmanuel Ferry, economist at investment brokerage Exane, told Reuters. "The survey shows a changing scenario in July, notably on the personal and general business outlooks which deteriorated significantly."

The French confidence index follows similar signs of pessimism in other eurozone countries. Business morale surveys in Germany and Italy -- the eurozone's No. 1 and No. 3 economies, respectively -- also showed a decline in confidence as a fragile economic recovery has been hampered by volatile stock markets and a stronger euro.

"This is worse than expected but not surprising given the development of other European countries' indicators," Olivier Gasnier, economist at Societe Generale, told Reuters. "I believe the rebound is slowing down, and we are back at levels seen three months ago."

The manufacturing sector, which accounts for about a quarter of the French economy, has come under pressure since the single currency's 10 percent rise against the U.S. dollar, making exports more expensive and cutting into company earnings.

Adding to business concerns is the continuing slide in prices for their products.

INSEE said on Tuesday that French producer prices slipped 0.3 percent in June from the previous month and declined 1.5 percent from a year earlier.

"The producer prices index shows businesses feel the general outlook is not good and it is affecting their pricing policy,'' Regis Khaber, economist at Aurel Leven, told Reuters.

Lower prices and weaker exports have resulted in cutbacks and layoffs at many French companies. The jobless rate is running above 9 percent in May, and there are indications unemployment will rise further in coming months if the economy does not begin showing signs of improvement.

The Bank of France recently revised its forecast for econmic growth in the second quarter. The central bank now expects the economy to expand by 0.5 percent between July and September, from a previous forecast of 0.6 percent.