PARIS, March 27 - French business confidence fell sharply in March and industry grew increasingly concerned about the economic outlook for the euro zone's second-largest economy, a report published on Thursday showed. National statistics office INSEE said business morale in France registered 94 in its catch-all composite confidence index, compiled from a survey of some 4,500 firms, after 97 in February. The March reading was the lowest since October last year. "This fall primarily reflects a climate of strong uncertainty," INSEE said in a statement accompanying the business survey.
Economists polled by in advance of Thursday's report had on average predicted a reading of 96.1. The index held steady in February after sliding in January. "The situation is serious but not desperate," said Natexis Banques Populaires chief economist Marc Touati. "More than ever we need a swift conclusion to the (Iraq) conflict." However, he pointed out the survey focused on manufacturing industry, which he said accounted for only 18 percent of French output, and that the service sector, accounting for some 70 percent, was in better shape. "Unfortunately the situation is close to recession in (manufacturing) industry," said Touati. "In April, the situation should improve due to a fall in the oil price and the euro." The data from France, which accounts for over 20 percent of euro zone economic output, followed news on Wednesday that the German Ifo business climate index fell unexpectedly in March. The report from Germany, France's biggest trading partner, dashed hopes that Europe's largest economy was about to recover from months of stagnation. Another closely watched gauge in Thursday's French business confidence data, known as the "general outlook" index, registered minus 53 after a revised minus 34 in February. The consensus forecast for this figure was minus 35.2.
The Paris Chamber of Commerce (CCIP) also saw risks of the French economy flagging in an industry survey it released on Tuesday. "For the coming months, the risks of stagnation are obvious," CCIP President Michel Franck said in a statement accompanying the report. "Big companies, threatened by the international economic situation and the fall of the financial markets, are making cut backs and this is having an effect on consumer confidence." A series of high-profile company cut backs in France have weighed on consumer confidence, resulting in a 0.5 percent fall in household spending in February -- the largest drop since November. Food group Danone and aluminium maker Pechiney have been among leading names to close factories. More jobs were lost when airline AirLib collapsed last month.//