French bounce keeps Eurozone growth on track

FRENCH firms have reported an unexpected burst of growth this month, while German companies suggested a slowdown in Europe’s powerhouse economy’s expansion.

Purchasing managers’ indexes (PMI) from data firm Markit indicate that growth in the Eurozone is broadly unchanged from February: the headline PMI figure was down 0.1 points to 53.2 in March, marginally above the neutral 50 mark.

Both French manufacturing and services firms reported a robust improvement, with their indexes swinging above 50 to the highest level in two and a half years. In comparison, Germany’s manufacturing and services PMIs fell to 53.8 and 54 respectively, down from February and below expectations.

“France is still lagging behind the Eurozone average and even most reform countries in southern Europe. But the sudden jump in March ends a long period of serious deviation which suggests that the French economy probably continued to expand in the first quarter of 2014,” said Berenberg’s Christian Schulz.

Many Eurozone countries have returned to growth in the past year, and the region as a whole exited recession again last summer.

The employment parts of the indexes are no longer negative for the euro area in general, but are only very modestly above 50 for the second month running, despite the euro area’s elevated 12 per cent unemployment rate.

Despite the recent improvement in growth rates and forecasts, research from Barclays indicates that the region’s projected long-term low inflation will complicate the Eurozone’s efforts to reduce debt ratios: “The ongoing structural reforms and internal devaluation are welcome to help raise long-term growth prospects and mitigate sovereign insolvency concerns. However, they create deflationary pressure and, as a result, complicate the debt dynamics in the near term.”