French jobless rate rises to 10%, confidence declines

Feb 25 | Updated: Feb 26 2005, 05:30am hrs
The French unemployment rate unexpectedly rose to a five-year high of 10% in January and manufacturers became more pessimistic this month amid higher raw material prices and concern about the strength of a recovery. The number of unemployed in France, Europes third-largest economy, climbed by 23,000 to 2.716 million from December, the labor ministry said in Paris on Friday.

Economists expected the jobless rate to remain at 9.9%, the median of 28 forecasts in a Bloomberg survey showed. An confidence index dropped to 104, the lowest in eight months, from 105 in January, the government statistics office, Insee, said.

The euro is much too high for our exporters and increases demand for imported goods, said Marc Touati, chief economist with Natexis Banques Populaires SA in Paris. The euro region is not doing well and growth is too weak to create jobs.

The cost of crude oil reached a four-month high on Thursday and the euro rose to the highest in six weeks against the dollar February 23, putting pressure on manufacturers profit margins and making exports more expensive. PSA Peugeot Citroen, Europes second-largest carmaker, said February 23 earnings may fall this year because of higher prices for commodities including steel and plastics.

In Germany, where the economy contracted in the fourth quarter and unemployment is at the highest since World War II, business confidence fell for the first time in three months, the Munich-based Ifo Institute said February 23. Italian and Belgian business confidence also fell this month.

The demand of the clients is there, but its not an explosive market, said Pasquale Pistorio, chief executive officer of STMicroelectronics NV, Europes largest semiconductor maker, in an interview February 22. The company expects the chip market to pick up in the second half of 2005.

France has outpaced growth in the 12 nations sharing the euro for the past two years and matched the rate of the US on a quarter-on-quarter basis in the final three months of 2004. Government measures to stimulate consumer spending and a recovery in industrial production led to the acceleration. Whats remarkable is that French unemployment has failed to come down even though the economy has been quite strong last year, said Elwin de Groot, an economist at Fortis Bank Nederland NV in Amsterdam. There seems to be a big gap between GDP and employment growth.