French business confidence fell to the lowest in more than three years in July as record oil prices and a stronger euro dimmed the outlook for economic growth.
An index of sentiment among 4,000 manufacturers dropped to 98 from 101 in June, according to Insee, the Paris-based national statistics office. That was the weakest since May 2005. Economists expected a reading of 100, according to the median of 22 estimates in a Bloomberg News survey.
Growth in the French economy is deteriorating as inflation and surging oil prices squeeze purchasing power and push up production costs just as the stronger euro hurts exports. The jump in consumer prices prompted the European Central Bank to raise interest rates earlier this month and President Jean-Claude Trichet is refusing to abandon his inflation-fighting rhetoric.
“The outlook for higher interest rates and the lingering uncertainty about the economic outlook are likely to continue to weigh on confidence,'' said Joost Beaumont, an economist at Fortis Bank in Amsterdam. “Overall, we think that confidence will continue to move around the 100 level in the near term, which is below its average in the past 10 years of 104.''
Insee's sub-index of how executives see the economic outlook fell to minus 34 from minus 15; a gauge of orders dropped to minus 18 from minus 13; and a measure of foreign orders slipped to minus 14 from minus 7.
Europe's largest economies have shown signs of slowing since the end of the first quarter. Industrial orders in the euro region dropped more than twice as much as forecast in May payday loans in 1 hour. Business confidence in Germany and Italy probably also fell this month, separate surveys showed.
The Isae Institute will release the data at 9:30 a.m. today in Rome and Germany's Ifo Institute publishes figures 30 minutes later.
Trichet said last week there will be a “trough'' in growth through the third quarter before the economy gathers strength toward the end of the year. The bank raised its benchmark rate by 25 basis points to 4.25 percent this month.
For companies such as Airbus, the world's biggest planemaker, the euro's 14 percent appreciation against the dollar over the past year is a “deep, substantial problem,'' Chief Executive Officer Tom Enders said yesterday. The euro climbed to a record $1.6038 on July 15 and traded at $1.5683 at 7:51 a.m. in London.
“We are preparing ourselves for a sustained period of a low dollar,'' Enders told reporters in Toulouse, France. With record oil prices also hurting the industry, Airbus faces a “challenging environment,'' he said. Crude oil has risen 70 percent in the past year, reaching a record $147.27 a barrel on July 11.
French Finance Minister Christine Lagarde last week said growth this year would be at the lower end of the government's forecast of between 1.7 percent to 2 percent.