French business sentiment rose unexpectedly in March, reaching its highest level so far this year as firms reported fuller order books and lower stocks, national statistics office INSEE said today.
The business confidence index rose to 109 from an unrevised 107 in February, bucking economists' consensus forecast it would fall to 106 and offering a glimmer of hope for the euro zone's second biggest economy at a time when overall growth is slowing.
The data appeared to support the government's thesis that the French economy is weathering headwinds from a US economic slowdown and a global credit crunch better than some of its European partners.
However, that will not be enough to prevent a downgrade in growth forecasts, with Prime Minister Francois Fillon telling this week's L'Express magazine that the government would cut its 2008 growth forecast to 1.7 to 2 per cent from 2 to 2.5 per cent previously and would revise up its public deficit projection.
Private sector economists are even more pessimistic with Barbet predicting 2008 French growth of 1.2 per cent.
Accelerating inflation is eroding the buying power of income and that is expected to dent consumer spending, the traditional mainstay of French growth.
Analysts also questioned how long French industry could withstand slowing growth in other developed economies and the euro's strength on the foreign exchanges.