August 22, 2013 / 8:16 AM / 5 years ago

French business slump deepens in August, points to contraction: PMI

PARIS (Reuters) - France’s business slump deepened in August for the first time in five months, a business survey showed on Thursday, suggesting the economy may be shrinking after a bigger-than-expected rebound in the second quarter.

The logo of French group GDF Suez is seen on a building in the financial district of La Defense, near Paris August 1, 2013. REUTERS/Benoit Tessier

Data compiler Markit said its flash composite purchasing managers index, which covers both the manufacturing and services sectors, fell to 47.9 from 49.1 in July, after improving every month since April.

While the manufacturing sector’s index held steady at 49.7, it missed analysts’ expectations that it would rise above the 50 point line dividing expansions from contractions.

Markit said the data suggested the euro zone’s second-largest economy would contract by 0.3 percent in the third quarter, after official French data showed an unexpected 0.5 percent rebound in the second quarter.

“From the PMIs we’ve got no idea where that (second-quarter GDP) growth is coming from. We can’t see that in the surveys at all and we’re very much scratching our heads,” Markit chief economist Chris Williamson said.

“If there was a rise, we think it’s looking temporary and could fade in the third quarter.”

However, forward-looking indicators in the survey looked more positive. Williamson said that despite the August data, where part of the slump could be due to many businesses shutting down that month, Markit expects the overall 2013 trend of an improvement in its PMI readings to continue.

“There is an easing trend in the PMIs, and given what we’ve seen in the rest of the region, we expect French businesses to get a little bit more confident as the year goes on and hopefully get those readings above 50, in the service sector most importantly,” he said.

While the services sector index was down to 47.7 in August from 48.6 in July, widely missing analysts’ expectations of a 49.2 reading, expectations that activity in the sector would improve over the next year stayed at an 11-month high.

New orders in the manufacturing sector rose slightly for the first time in over two years.

The second-quarter growth spurt pulled France out of a shallow recession, easing President Francois Hollande’s government’s return from a summer break. But tax hikes, rampant unemployment and the outlook for the euro zone as a whole will determine whether the rebound can last.

The quarterly rebound was stronger than most economists expected. When it published its flash PMI for May, Markit had said it expected the French economy to contract by 0.5 percent in the second quarter.

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Reporting by Ingrid Melander; Editing by Hugh Lawson

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