French business morale at four-year high, but investment missing

By Leigh Thomas PARIS (Reuters) - French business confidence reached a four-year high in August, but a much-awaited recovery in business investment remains elusive as the euro zone's second-biggest economy struggles to gain momentum. The official INSEE statistics agency said on Thursday its business sentiment indicator edged up to 100 from 99 July, reaching a level not seen since August 2011. Its closely watched industrial morale index also rose, to 103 from 102 in July, better than the forecast from a Reuters poll of 20 economists for a figure of 101. "The August (data) does not capture the recent Asian market melt-down, and September should be weaker," BNP Paribas economist Dominique Barbet said in a research note. And despite plunging prices for raw materials, manufacturers said in another INSEE survey they now plan to increase investment this year by only two percent. They had flagged a seven percent increase the last time the poll was conducted, in April. That is not good news for France's government, which is pinning its hopes for recovery on a revival in business investment after growth stalled in the second quarter amid weak consumer spending. However, Finance Minster Michel Sapin said the improvement in the monthly business sentiment surveys suggested the second- quarter weakness was only temporary. "These surveys offer comfort to our forecast for one percent growth in 2015 with job creation progressively picking up," Sapin said in a statement. Unemployment remains close to record highs, although a monthly tally released on Wednesday showed it improved slightly in July for the first time since the start of the year. In a another sign of improving prospects, the Housing Ministry reported this week that new home sales surged 22 percent in the second quarter from a year ago, as investors returned to the market after the government scaled back rent control plans. Housing investment has been a drag on French growth and the improvement has yet to feed into home-building, a major employer. New housing permits were down 7.3 percent in June. With interests ranging from homebuilding to broadcasting and telecoms, conglomerate Bouygues posted first-half results on Thursday, reflecting the mixed signals coming from the French economy. The family-controlled group said sales slipped one percent as its construction business weighed on the results, but it raised its profit target for its telecoms unit. (Additional reporting by Jean-Baptiste Vey and James Regan; Editing by Andrew Callus, Larry King)