ANALYSIS-French data show eurozone growth fear exaggerated
By Matthew Green
PARIS, Oct 27 (Reuters) - French firms' cheery view of their own business prospects showed on Friday that forecasts of a serious euro-zone slowdown may be based more on misplaced fears than on concrete production plans.
Predictions that high oil prices may slam the brakes on growth gained ground after September surveys revealed a gloomier mood among German firms and a sharp drop in Belgium's closely-watched business sentiment index.
But economists said the latest upbeat figures from French industrialists were a more concrete indicator of the euro area's prospects than surveys reflecting what may well turn out to be exaggerated worries over oil and interest rates.
"There's a psychological over-reaction -- managers are looking at bad news which has not been reflected in the level of activity," said Emmanuel Ferry, economist at Exane.
French national statistics institute INSEE said its index of firms' views of their personal business prospects, which economists see as a reliable pointer towards actual production intentions, rose to a record high of 31 in October from 25 in September.
Paradoxically, the improvement in personal prospects clashed with a fall in the general outlook which showed a bleaker view of the economy as a whole and has often proved a less trusty forward-looking indicator.
As French and German factories churn out growing quantities of goods, economists said investors would do better to take a lead from hard evidence of durable growth, and ignore fears among businessmen of a consumer slowdown, rising credit risks and a slide in U.S. technology stocks.
ALL IN THE MIND?
Dizzying rises in oil prices have fanned concerns that dearer petrol prices will force consumers providing the driving force of the euro zone's recovery to tighten their belts.
But while a dramatic slump in French consumer confidence in September sent economists' scurrying to cut growth forecasts, many industry leaders are confident that domestic demand is far from a serious downturn.
French car maker Peugeot Citroen PSA (PEUP.PA) said a spike in crude prices to 10-year highs this autumn may encourage consumers to delay their purchases, but 2001 should still register above-average economic growth.
"There's no particular pessimism, just as there was no particular optimism. We're still sticking to a big investment plan agreed at the beginning of the year," a Peugeot economist said on Friday.
European bankers and politicians have increasingly warned that the euro zone can expect slower expansion than initially forecast this year.
While business may take fright, economists stressed that growth rates are at decade highs.
Italian independent research group ISAE brought the point home on Thursday when it said the picture was still "very favourable," despite cutting its forecast for 2001 gross domestic product growth (GDP) to 2.6 percent from 2.8 percent.
NO LOANS SHORTAGE
Brushing aside fears of a consumer slowdown, economists said businesses have also been unnerved by fears that oil prices will force the European Central Bank into aggressive rate hikes to choke off inflation, and bolster the beleaguered euro.
But despite ECB hikes, real short-term interest rates remain near historic lows and euro-zone figures released on Friday showed annual growth of credit to the private sector accelerated to 10.8 percent in September from 10.1 percent in August.
"Despite the past year's rise, real short-term interest rates remain close to historic lows, so they are not a constraint on growth," ABN Amro economists said in a research note.
STOCK SLIDES DARKEN MOOD
Newspaper headlines trumpeting stinging losses in U.S. stock markets and an eight-percent slide on France's blue-chip CAC-40 in September have handed more ammunition to pessimists.
However, while sharp falls in stock prices may drag on consumer spending in the United States where a high proportion of wealth is tied up in shares, euro-zone spending patterns are far less sensitive to stock exchange fluctuations.
Spectacular earnings warnings that have punctured valuations for high tech stocks like Intel (INTC.O) have added to bearish sentiment, but they do not necessarily imply weaker performance for European counterparts.
French chipmaker STMicroelectronics (STM.PA) reported a tripling of net profits in the third quarter, while European aerospace group EADS (EAD.PA) impressed investors with the strength of the performance at its Airbus unit.
And just hours after the French confidence figures hit the market, Europe's top car maker Volkswagen AG (VOWG.DE) announced it was cruising towards a record year.
Boding well for firms across the euro zone, Volkswagen said the German economy was strong and exports had gained from the weak euro, which hit record lows around $0.8225 on Thursday.
11:59 10-27-00 |
