Business news

French manufacturers’ confidence remained at a record low in January as the global financial crisis threatens to push Europe’s third-largest economy into its worst recession since World War II.

An index of sentiment among 4,000 manufacturers stayed at 73, matching last month’s level, according to Insee, the Paris- based national statistics office. The reading was the lowest since the index started in 1976.

The French economy will contract 1.8 percent this year, the worst performance since the Second World War, the European Union projected on Jan. 19. Finance Minister Christine Lagarde said “times are uncertain and difficult.”

“The situation remains worrying,” BNP Paribas economist Eric Vergnaud said. “The outlook for the first and second quarter is nothing to look forward to.”

European economic confidence is at a record low and services and manufacturing activity contracted for an eighth month in January. The euro-area economy will shrink 1.9 percent this year, according to the EU’s projections, with German gross domestic product shrinking 2.3 percent.

French bonds rose after the report, with the yield on the 4 ¼ bond due in October 2018 falling 3 basis points to 3.65 percent at 9 a.m. in Paris. The euro slipped 1 percent to $1.2867.

Job Cuts

Companies are cutting jobs as the credit crunch derails purchases of homes, cars and factory machinery. The EU sees France’s unemployment rate reaching 9.8 percent this year and 10.6 percent next year. The number of jobseekers in France has been rising for seven months, recording the biggest jump on record in November.

Plastic Omnium SA, the French car-equipment maker, recorded its first loss in 2008 because of costs linked to job cuts and plant closings payday loan lenders. Valeo SA, France’s second-biggest maker of auto components, said it will eliminate 1,600 positions in France and 1,800 in other European countries.

Automakers Renault SA and PSA Peugeot Citroen are both cutting jobs and idling plants to confront the slump in demand. European car sales fell 18 percent in December, leaving sales down 7.8 percent for all of 2008, the largest full-year decline in 15 years. Rio Tinto Group, the world’s third-biggest mining company, is scaling back production and said on Jan. 20 that it will cut 680 jobs in France.

A gauge of general production outlook dropped to minus 75 from minus 73, Insee said. Another for manufacturers’ own output increased to minus 39 from minus 41.

Worst Quarter Since 1974

The final quarter of 2008 may have been the worst in France since 1974, the Bank of France said on Jan. 16. GDP probably shrank 1.1 percent in the period, more than the 0.7 percent contraction estimated last month.

Germany, France’s biggest trading partner and Europe’s largest economy, is also feeling the pinch. German business confidence dropped to the lowest in more than a quarter-century in December. Germany may have contracted the most in two decades — between 1.5 percent and 2 percent in the last quarter.

Italy, Europe’s fourth-biggest economy, will this year contract by 2 percent, its largest‘

decline since 1975, the Bank of Italy said on Jan. 15.

Source