March 9, 2020 / 8:26 AM / 24 days ago

French central bank sees slight first quarter growth, warns of potential slump

FILE PHOTO: A tourist wears a protective mask in front of the Galeries Lafayette department store in Paris as the country is hit by the new coronavirus, France, January 30, 2020. REUTERS/Benoit Tessier

PARIS (Reuters) - The French economy will barely grow in the first quarter but narrowly dodge recession, the central bank forecast on Monday, as it warned of a potentially severe slowdown due to the coronavirus outbreak.

In its monthly business climate survey, the Bank of France cut its first quarter growth forecast to only 0.1% from 0.3% previously.

Though ever so slight, any first quarter growth in the euro zone’s second-biggest economy would mean it avoided recession after contracting in the fourth quarter.

Until the coronavirus outbreak reached France in recent weeks, the French economy had shown signs of bouncing back after shrinking 0.1% at the end of 2019, as companies drew down inventories rather than producing more goods following nationwide transport strikes over pension reform that hit their supply chains.

Bank of France Governor Francois Villeroy de Galhau said the survey of 8,500 firms at the end of February and early March showed a stark contrast between firms production at the start of the year and their outlooks going forward.

“This slowdown is potentially severe but temporary. The duration depends on the necessary health measures in China and Europe,” Villeroy said in a statement.

Nearly 20% of the executives polled by the central bank said they expected the outbreak to impact their business, with the number as high as 40% in the clothing industry and as low as 15% in construction.

Despite the deteriorated outlook, the central bank’s business sentiment indicator for the manufacturing industry was steady in February from January at 96 but fell for the service sector to 96 - the lowest since August 2016 - from 98.

Reporting by Leigh Thomas; Editing by Alex Richardson

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