The pace of growth in French private sector activity slowed slightly in December, a survey showed today, but new orders climbed at their fastest pace in over three years in a sign demand is strengthening.
The Markit/CDAF flash composite purchasing managers' index (PMI) which combines data from the services and manufacturing sectors, slipped back to 59.4 in December after hitting a 37-month high of 60.2 the previous month.
It was the fifth consecutive month that the index has remained above the 50 mark separating growth from contraction.
"When indexes get to a certain level you do sometimes see a little fall-off," said Rob Dobson, an economist at Markit.
"But the new business index has hit another high... which suggests that pipeline orders are continuing to come in at a reasonable rate."
The services flash PMI fell back to 59.3 in December from 60.9 in November.
In manufacturing, the flash PMI remained unchanged at 54.4, again slightly below a consensus forecast for 54.5.
But firms surveyed reported evidence of improving market conditions and client restocking, pushing the composite new orders index to its highest level since November 2006, at 59.8 compared with 59.2 a month earlier.
The work inflows came at a price, however, as December's survey revealed further evidence that firms are sacrificing profit margins in a fiercely competitive environment.
"Selling prices are being cut quite sharply and that does suggest that part of the recovery is being driven by discounting," said Mr Dobson.
The composite output price index remained firmly below 50, while input prices rose at their fastest rate in 14 months.
Faced with these pressures, firms continued to restructure their cost base, shedding jobs for the nineteenth month in a row, albeit at a slower pace than previously.
This will continue to fuel fears that rising unemployment could weigh on consumer demand in the months ahead, causing the nascent recovery to falter.
Revised data released last week showed French firms cut 93,100 jobs in the third quarter of the year, up from a previously reported figure of just 5,500, and unemployment is expected to get worse over the final months of the year.
For the time being, the government is predicting that fourth quarter GDP growth will be at least in line with the third quarter, when the economy expanded by 0.3 per cent, but economists are not ruling out a more lacklustre performance.
Reuters