French manufacturing sector contracts

Activity in France's manufacturing sector contracted for the first time in more than two years in August, a purchasing managers' survey shows, adding to recent signs that the euro zone's second-largest economy is slowing sharply.

The flash Markit/CDAF manufacturing purchasing managers' index (PMI) fell to 49.3 from 50.5 in July, dropping through the 50-point threshold that separates contraction from expansion for the first time since July 2009, data showed today.

Economists polled by Reuters had expected a slightly higher reading of 49.7.

Services activity, in contrast, grew faster-than-expected, taking the flash services PMI to 56.1 from 54.2 previously, and beating analyst expectations for a reading of 53.5.

But the sub-component for services business expectations fell more than five points over the month, which Markit said was a worrying sign for future growth.

"The producers are seeing this contraction of output and order books and at the same time the services sector is losing confidence," Markit chief economist Chris Williamson told Reuters.

"So it's really difficult to see how service sector growth can be sustained at the level we have at the moment," he said.

Based on August's PMI readings, the French economy might manage to eke out quarterly growth of 0.1-0.2 per cent in the July to September period after it flatlined in the previous quarter, Mr Williamson said.

The overall composite PMI edged up to 53.6 from a nearly two-year low of 53.2 in July.

News earlier this month that the economy stalled in the second quarter left private-sector economists scrambling to cut their growth forecasts for the full-year 2011.

A straw poll of six banks on Friday produced an average forecast of 1.37 per cent growth, well below the 2.25 percent on which the government has based its budget calculations.

Reuters