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Germany leaves France in the sidings

Monday, December 16, 2013 - 02:09

Dec 16 - Euro zone businesses ended the year on a high as new orders surged, but the chasm between a resurgent Germany and wilting France has widened this month. Sonia Legg looks at what investors think about the data.

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A new high speed rail service linking key cites in France and Spain was launched at the weekend. And passengers arriving in Paris from Barcelona after a six hour and 25 minute journey were clearly impressed. (SOUNDBITE) (Spanish) SPANISH PASSENGER ANDRES SANTOS, SAYING: "It was a very nice trip and it's better for the environment than travelling by plane." The trains reach speeds of around 300 kilometres an hour. France's economy isn't going quite as fast. New surveys suggest it's putting the brakes on an otherwise largely reviving euro zone. Markit's business activity data was the second highest since mid-2011. But once again the chasm between the top two economies was significant. France saw a steady contraction in activity - and was 8 points behind Germany Markit's Senior Economist is Rob Dobson. (SOUNDBITE) (English) ROB DOBSON, SENIOR ECONOMIST, MARKIT, SAYING: "What we are seeing here is that France continues to deteriorate at a faster rate and that means that France is a big drag on the euro zone. You have got to remember that France is also a producer that exports to other euro zone countries and also imports a lot from the euro zone so if France isn't doing well that could be a bit of a problem for other markets as well." Euro zone manufacturers have been boosted in recent months by a good recovery in global trade. That's helped Germany in particular. But the sector which makes up the bulk of the euro zone's economy is still causing concern. (SOUNDBITE) (English) ROB DOBSON, SENIOR ECONOMIST, MARKIT, SAYING: "The service sector, which is more domestic facing that's where we are seeing a lot of the weakness and until that improves and until jobs are created we are going to see the service sector only eek out meagre growth." Investors are certainly not getting carried away, says HSBC's Daragh Maher. SOUNDBITE (English) HSBC, FX STRATEGIST, DARAGH MAHER, SAYING: "It has been a kind of glacial improvement and that has been one of the concerns. We have had occasional step backs for certain countries, downsize surprises and so I think that alongside very low inflation still keeps the pressure on the ECB to do more. There is not enough lending - money still isn't getting to small businesses. I think that divergence could prove a big negative for the economy and a big negative for the currency." But the surveys do at least point to growth, although at 0.2% - only just.

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Germany leaves France in the sidings

Monday, December 16, 2013 - 02:09