Finance counsels

French consumer and manufacturer confidence rose in May and optimism among Italian executives held at the highest in more than year on expectations the worst of the recession is over.

French manufacturing confidence gained for a second month, while consumer optimism advanced to highest in 13 months, Insee, the national statistics office said. In Italy, household confidence matched the April reading, the highest since December 2007, the country’s national statistics institute reported.

Both economies remain mired in the worst recession in more than half a century. Still, lower borrowing costs and falling prices are providing some respite from the slump. To help companies weather the recession the governments of President Nicolas Sarkozy and Prime Minister Silvio Berlusconi adopted measures aimed at speeding public investment and providing incentives for consumers to buy durable goods such as cars.

“Confidence is only returning gradually,” Colin Ellis, European Economist at Daiwa Securities SMBC Europe Ltd. in London said in a note to investors. “A marked bounce back in spending continues to look unlikely.”

The French economy is set to contract for a fifth straight quarter in the three months through June and unemployment will reach 9.6 percent this year, the European Commission forecast on May 4. Italy contracted 2.4 percent in the first quarter, the most since at least 1980 and the commission expects Europe’s fourth-biggest economy to shrink 4.4 percent this year.

Stimulus Spending

The International Monetary Fund estimated that the Group of 20 industrial and developing countries have committed to spending increases and taxes totaling 2 percent of gross domestic product this year and 1 fast cash savings account.5 percent for next year.

“We don’t expect immediate consequences, but the impact of stimulus packages should be significant in 2010 for Lafarge,” said Bruno Lafont, chairman and chief executive officer of the world’s biggest cement maker, said on a conference call May 6.

In Italy, the government’s economic-stimulus package included a 1,500-euro-a-car cash incentive for scrapping an old car to buy a new, less polluting model. The measure has already helped Fiat SpA, Italy’s biggest manufacturer, slow the slide in sales. Fiat’s Italian sales fell 3 percent in April, less than most manufactures, and the carmaker lifted its share of the Italian car market to 35.2 percent from 33.5 percent a year earlier.

Inflation Easing

Interest rates are at record lows and inflation is easing, offering some relief to manufacturers and households. The European Central Bank this month reduced its benchmark rate to 1 percent, and ECB President Jean-Claude Trichet didn’t rule out taking it lower still. That also helped boost German business confidence for a second month in May.

France’s inflation rate fell to 0.1 percent in April, the lowest in at least 13 years, and in Italy, prices rose just 1.2 percent from a year earlier, holding near the March rate of 1.1 percent, the lowest in modern records.

“Lower inflation and the government incentives give a boost to confidence while the sharp increase in unemployment acts as a drag” said Annalisa Piazza, economist at Newedge Group in London.

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