November 21, 2013 / 8:36 AM / 6 years ago

French private sector falls back into contraction in November - PMI

PARIS (Reuters) - French business activity shrank again in November after eking out growth for two months, a survey showed on Thursday, suggesting the euro zone’s second-biggest economy may be slipping back into recession.

An employee works on a car tyre in the Michelin tyre company's factory in Clermont-Ferrand, central France, July 10, 2013. REUTERS/Regis Duvignau

The French economy, which unexpectedly contracted in the third quarter, is a source of concern for its key partners, with the EU and OECD both pressing Paris to enact more reforms.

Weaker-than-expected activity in both the services and manufacturing sectors dragged Markit’s composite purchasing managers index down two points to a five-month low of 48.5, back below the 50 line dividing growth from contraction.

Activity in the service sector also slumped back into contraction after growing for two months.

“These weak numbers suggest GDP could fall again in the final quarter of the year,” Markit chief economist Chris Williamson said, forecasting a 0.2 percent contraction in the 2 trillion euro economy in the fourth quarter after a 0.1 percent drop in the third quarter.

“There is a downbeat assessment for the outlook for the year ahead,” he added, with business expectations tumbling to their weakest since May.

Markit’s forecast is much more pessimistic than that of France’s central bank. Earlier this month the Bank of France said the economy was set to gain momentum towards the end of 2013 and would post growth of 0.4 percent on the quarter in the last three months of the year.

Williamson said the fastest rate of job shedding in six months, the first drop in exports in three months and an ongoing contraction in new orders all combined to paint a bleak picture for the French economy.

The PMI readings in November were, however, still several points higher than in the first half of the year, suggesting any new downturn would be very mild, following a shallow recession in the six months to March 2013.

The services PMI slipped to 48.8 in November from 50.9 in October, well below a forecast of 51.0 in a Reuters poll.

Similarly, the index for manufacturing activity dropped to a six-month low of 47.8, while analysts had expected the sector to edge closer to growth with a forecast of 49.5.

Standard & Poor’s cut France’s sovereign credit rating on Nov 8, while the EU and OECD have warned the country over the slow pace of its reforms.

Top global investors invited this week by Reuters to discuss their outlook for 2014 said the stagnant French economy and a dearth of much-needed economic reforms were a weak link at the heart of the healing euro zone, heaping risks on French assets and the common currency.

Still, the OECD last week raised its outlook for the French economy, saying it expected it to grow 1 percent next year, although it warned that Paris was falling behind southern European countries that have done more to overhaul their economies.

Reporting by Ingrid Melander; Editing by Hugh Lawson

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