French private sector grows

Tue, Jan 24, 2012, 00:00

French private sector activity grew in January for the first time in four months, helped by a rebound in the services sector, but widespread weakness in order inflows dispelled the prospect of a rapid recovery ahead of a presidential election.

The Markit/CDAF flash composite purchasing managers' index (PMI), released today, which combines data for both services and manufacturing firms, rose to 50.9 in January from 50.0 in December.

The service sector index rose to 51.7 from 50.3 the previous month, ahead of a Reuters forecast for 50.4 and offsetting persistent weakness in the manufacturing sector, where the PMI fall to 48.5 from 48.9.

But looking beyond the headline index, services firms saw orders fall for the fourth consecutive month in January, mirroring the downward trend in the factory sector, which reported its seventh straight decline in new business.

"At face value, January's rise in activity provides some reasonably positive news at the start of 2012," Markit senior economist Jack Kennedy said.

"However, the details of the survey reveal an accelerated fall in incoming new business and a depletion of backlogs, suggesting the underlying situation remains weak.”.

In addition to uncertainty about the euro zone's debt crisis and in the economies of major trade partners, French companies are bracing for policy shifts at home with a two-round presidential election looming in April and May.

Ahead of the election, French president Nicolas Sarkozy has promised to push through a reform of labour rules and taxes while Socialist frontrunner Francois Hollande has declared war on financial sector excesses, leading to policy uncertainty for businesses.

Data from January's poll showed business expectations in the service sector fell to their lowest level in 34 months, suggesting firms believe the upturn will remain soft if it holds up at all in the months ahead.

"A confluence of uncertainties surrounding the euro, the financial sector and the economy in general are clearly weighing on business confidence at present, and the near-term outlook therefore remains for minimal growth at best in the first quarter," Mr Kennedy said.

The INSEE statistics office forecast last month that France would suffer a short, shallow recession in the final quarter of 2011 and the first three months of this year, which it said would destroy 60,000 jobs in the first half of the year.

Reuters