Recession could return to France as firms struggle

FRENCH businesses appear to have contracted this month, according to a major survey of manufacturers and services firms, adding to concerns for the second-largest economy in the Eurozone.

The country’s purchasing managers’ index (PMI) fell to its lowest level since the second quarter in November, Markit announced yesterday. France’s score dropped to 48.5, below the neutral 50 level, indicating a small economic contraction.

Though employment conditions appeared to be improving for the first month in 20 during October, the part of the index which measures the job situation receded in yesterday’s release.

Combined with the marginal contraction during the third quarter, yesterday’s PMI reading is likely to heighten worries that a return to recession (defined as two quarters of negative growth) is on the cards.

The overall score for the Eurozone was positive, reaching 51.5, slightly lower than last month’s 51.9.

Germany’s score, which was the only other single country released by Markit, came in at a much healthier 54.3. The reading was the highest seen for 10 months, combined with a small hike in employment.

Deutsche Bank’s Giles Moec said that the news vindicated the European Central Bank’s decision to cut their benchmark rate to 0.25 per cent: “For now, continuing to publicly signal a willingness to act should suffice, leaving the governing council time to monitor further the data flow.”

Berenberg’s Robert Wood had harsher words on the French government’s progress: “We warned two years ago that alarm bells should be ringing in France, and the continued lack of serious reforms mean it is increasingly falling behind the rest of the Eurozone.”

Consumer confidence in the Eurozone also came in lower than expected yesterday, with a headline figure of minus 15.4, down from October, after declining in every other month of the year.