Recession beckons as French business downturn deepens - PMI

PARIS Thu Jan 24, 2013 8:37am GMT

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PARIS (Reuters) - French business activity shrank in January at the fastest pace since the trough of the global financial crisis, a survey showed on Thursday, in a new sign the euro zone's second-biggest economy may be in recession.

Data compiler Markit said its preliminary composite purchasing managers' index (PMI), covering activity in the services and manufacturing sectors combined, came out at 42.7 for the month, slumping from 44.6 in December.

The drop brought the index to the lowest level since March 2009 and took it further below the 50-point line that separates growth in private sector activity from contraction.

Even though expectations for future business improved in services, the PMI index for the services sector fell to 43.6 from 45.2 in December, while the long-struggling manufacturing sector saw its index fall to 42.9 from 44.6.

Economists had expected both indexes to improve, forecasting readings of 45.6 in the service sector and 45.1 in manufacturing.

"January's flash PMI data signal a very disappointing start to 2013 and add to concerns that the French economy is sliding towards recession," Markit senior economist Jack Kennedy said.

France has not yet published fourth-quarter GDP figures, but Markit said the PMI data suggested the 2 trillion euro economy contracted 0.6 percent in the period and that France's downturn is worsening.

Markit said weak domestic demand was seen as the main culprit for slumping business activity, with orders for exports holding up better than orders within France.

With business at depressed levels, companies stepped up staff cuts, boding ill for President Francois Hollande's pledge to start reducing unemployment before the end of the year.

Economists polled by Reuters forecast on average that the economy will post flat growth this year, far less than the 0.8 percent Hollande's Socialist government has based its public deficit targets on.

A business survey by the INSEE official statistics office on Wednesday also came in weaker than economists expected, though it indicated confidence was at the lowest level since only October.

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For further information, please phone Markit on +44 20 7260 2454 or email economics@markit.com

(Reporting by Leigh Thomas; Editing by Hugh Lawson)

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