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French business morale sours in Jan as gloom spreads

A general view shows the Champs Elysees Avenue and the Arc de Triomphe monument in Paris
A general view shows the Champs Elysees Avenue and the Arc de Triomphe monument in Paris

PARIS (Reuters) - Business morale in France's manufacturing sector dropped unexpectedly in January as uncertainty over the state of the euro zone and world economy as well as upcoming elections weighed on sentiment, adding to hints that France started the year in a recession.

The slump in industrial confidence, now in its seventh month, adds to the sense of economic gloom in France just three months before a two-round presidential election in April and May.

Manufacturing sector morale fell in January to 91 from 94 in December, well below a long-term average of 100 and hitting the lowest level since February 2010, according to a monthly survey from the INSEE national statistics office.

In a Reuters poll, 21 economist had forecast, on average, that the indicator would rise to 95, with estimates ranging from 92 to 96.

"The implementation of an austerity plan in January, poor international climate, and the unclear presidential campaign with no clear view about the favorite's platforms have not reassured the French business sector," ING economist Manuel Maleki said in a research note.

Socialist candidate Francois Hollande, who is favored to win the election against incumbent Nicolas Sarkozy, declared war on the world of finance on Sunday in a speech to supporters which drew a flurry of attacks from Sarkozy aides.

The latest dip in confidence points to a longer trend of decline in France's industrial sector, a potent theme in the upcoming election which has both candidates vying to save French jobs and stop a glut of industrial shutdowns.

Sarkozy and Hollande have both promised to set up public investment funds to support struggling mid-sized firms, while the centre-right incumbent has pledged to limit job losses with an overhaul of labor rules before the election.

"We entered into recession in recent months and there won't be a rebound in the beginning of the year," Maleki said.

Overall private-sector business morale eased to 91 points in January from 92 in December, well below the long term average of 100 and the lowest reading since December 2009, according to INSEE.

The statistics office forecast last month that France would suffer a short, shallow recession in the final quarter of 2011 and the first quarter of 2012 which it said would destroy 60,000 jobs in the first half of the year.

(Reporting by Leigh Thomas)

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