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French manufacturers expect investment to stall in 2017

[PARIS] Executives at French manufacturers plan to hold off on increasing investment next year after three consecutive years of higher spending, a survey showed on Tuesday, hindering the government's hopes for a strengthening recovery.

Economists consider the survey by the INSEE statistics office a bellwether of corporate investment intentions. It is closely watched by the government, which is banking on a turnaround in business investment to fuel a recovery in the eurozone's second-biggest economy.

In their first assessment of next year's plans, manufacturers polled in October said they intended to leave spending in 2017 at the same level as this year, dragged down by gloomy expectations in the transport sector.

That would mark a significant slowdown from the 5 per cent increase manufacturers expect for this year. The estimate had itself been lowered from 6 per cent the last time the survey was conducted in August.

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The new survey will cast doubt on the Socialist government's 1.5 per cent target for economic growth next year, on which it based its last budget bill before the 2017 presidential election.

Finance Minister Michel Sapin had already had to admit last month that the government would not meet its growth target for this year, also set at 1.5 per cent, after third-quarter gross domestic product data undershot expectations.

Some economists said it was still too early to draw conclusions from the investment survey, even though the overall reading was weak.

Coe-Rexecode economist Denis Ferrand said at the same time last year, manufacturers planned a 3 per cent rise in investment spending for 2016, which was later raised.

"In all likelihood, business investment will remain tilted to the upside, but with no new impetus," he told Reuters. He expects economic growth to reach only 1.1 per cent in 2017.

INSEE also said the 2017 estimate was based on a response rate of two-thirds among polled executives, compared with a 90 per cent rate for 2016 expectations, in a sign manufacturers'have yet to draw up definitive plans.

Investment in manufacturing accounts for a quarter of all business investment spending, which itself represents 12 per cent of GDP.

The survey came as the customs office separately said France's trade deficit had widened in September, with French exports of cars, pharmaceutical and agricultural products all flagging.