French Business Confidence: Viewed By Entrepreneurs And Purchasing Managers

While the World Bank has down graded its forecast for Euro area growth this year to -4.5% from its earlier forecast of -2.7%, indicators of French and German Business confidence have become less pessimistic, although they are still negative. Yesterday, the German IFO reported an improvement in its Business Climate indicator and today, France's INSEE (National Institute of Statistics and Economic Studies) reports that its Composite Business Indicator has risen to 73 in June from 71 in May and 68 in April. Both the Industry and Services components of the Composite Indicator, show similar rises and the Construction component has held steady at 92. The components of the Composite Indicator are shown in the first chart.

The June preliminary or "flash" result from the Markit Economics Purchasing Managers' Survey for France, released today, also suggests that business is becoming less pessimistic. The diffusion index for the purchasing managers' views on the total economy is 47.7, close to the 50 mark above which expansion is indicated.

The second chart shows the INSEE indicator against its long term average* and the results of the Markit Economics Purchasing Managers' Survey against the 50% line that divides expansion and contraction. The purchasing managers appear to be the less pessimistic.

The INSEE indicator is so constructed that its long term average is 100 and its standard deviation, 10.