PARIS (MNI) – France’s economic recovery is likely to lose a little
momentum in 3Q, with only modest growth in industry, the Bank of France
said Monday, projecting GDP growth of 0.3% on the quarter.

Last month the central bank estimated 2Q growth at 0.4%, slightly
less than most analysts expect from the preliminary data to be released
this Friday. The national statistics institute Insee had forecast +0.5%
in June.

Buoyed by export demand, industry production no doubt remained
dynamic in 2Q, but company output prospects eroded markedly during the
quarter, suggesting a slowdown at the start of 3Q. The acceleration of
imports points to a rebuild of inventories in 2Q, which could offset an
eventual drag from foreign trade.

The Bank of France’s survey from July signaled steady growth in all
industrial sectors except for non-auto transport equipment, where
activity was stable. The overall capacity utilization rate eased down
0.4 point from June to 76.4%, nearly six points below the long-term
average.

Order books were assessed close to normal levels and finished goods
inventories were little changed, also at normal levels, the central bank
commented. “Forecasts point to slight growth in production levels in the
short term,” it said.

In line with most analysts’ forecasts, the bank’s sector climate
indictor, based of the latest three months’ results, stood at 101 in
July, but this was not the modest improvement expected, since June’s
level was revised up one-point to May’s 101, down two points from the
cyclical peak in March. The long-term average is 100.

In the services, activity picked up again in July, after a slowdown
in June, bolstered by growth in temporary employment — an early
indicator of an improvement in the labor market. However, the sector
climate index slipped one point to 96, apparently reflecting mainly
waning growth in overall demand in recent months.

“The outlook for activity indicates an upswing over the coming
months,” the bank said.

Other surveys also signal diverging trends in industry and the
services. Insee’s industry survey showed morale recovering somewhat in
July as orders improved, but company production expectations eroded
further. The factory PMI slipped another 0.9 point in July to 53.9, down
2.7 points from a peak in April, as output and orders slowed and
employment contracted faster.

By contrast, the services PMI recovered somewhat in July to a solid
61.1, despite further erosion in medium-term expectations. Insee’s
survey signaled a marked pick-up in recent activity. But here again,
expectations for activity and demand weakened further, leaving the
overall index still slightly below the long-term average.

The principle risk for the medium term is private consumption, the
traditional motor of French growth. Spending on manufactured goods has
been heading south since public incentives for new car purchases were
cut back in January, falling 1.9% in 1Q and another 0.9% in 2Q,
signaling another quarter of lackluster private consumption.

With wage gains at a decade low, unemployment high, and public
income supports being cut back, consumption could well remain anemic for
some time. Consumer sentiment has sunk to 13-month lows, undermined by
rising prices, financial concerns and job worries.

–Paris newsroom +331 4271 5540; e-mail: stephen@marketnews.com

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