–Adds Results Of Quarterly Survey In Wholesaling, Construction

PARIS (MNI) – French economic activity picked up in September,
especially in the services, and should continue to expand in the near
term, the Bank of France said Friday, citing the results of its business
survey.

However, after a sluggish summer, 3Q GDP growth should register a
marked slowdown to 0.3% after +0.7% in 2Q, the central bank estimated,
confirming its previous projection.

Last week, the national statistics institute Insee also confirmed
its forecast for 3Q GDP growth of 0.4%, due mainly to slower business
investment gains after the rebound in 2Q.

The Bank of France’s survey suggested that industry expanded in all
sectors in September after a “lull” in August. After a 2.6-point slide
since June, capacity utilization bounced back 2.4 points to 76.8% —
still more than five points below the long-term average.

The bank’s sector climate indictor, based on the latest three
months’ results, surprised on the upside with a one-point uptick to 102
after five months at 101. The long-term average is 100.

Moreover, industry order books recovered “markedly”, returning to
levels seen before the financial crisis, the central bank said. With
finished goods stocks down slightly, it predicted “an ongoing
improvement in output growth in the short term, albeit at a less
sustained pace.”

The quarterly supplement to the survey suggested that industry
firms’ cash positions improved further in 3Q, surpassing the long-term
average. Investment spending increased as well after two quarters of
stagnation and is expected to continue higher in the coming months.
While margins narrowed a bit, gross operating profits increased
slightly.

In services, activity expanded “strongly” in September on the back
of temporary work and transportation, the bank said. The upturn in
hiring since last spring continued as well. However, with service fees
still declining, the sector climate index remained below par at August’s
level of 95.

Still, as the services production outlook remained at a solid
level, the central bank forecast “ongoing strong growth over the coming
months.”

Wholesalers reported a rise in sales volumes and orders in 3Q.
Purchases rose as well, boosting inventories beyond targeted levels.
More moderate growth is expected in the near term.

Survey results for the construction sector were surprisingly
upbeat. Builders reported a continuation of the recovery begun in 2Q.
Order books expanded, but remained below average. Further expansion is
expected, with growth in civil engineering flanking that of the building
branch.

GDP data, however, showed a further decline in construction
activity in 2Q, though at the weakest pace since the slide began two
years ago. Insee expects activity to stabilize during the second half of
this year.

The results of the bank’s September retail survey will be released
next Thursday.

Insee’s latest sentiment surveys also signaled a recovery in
business prospects in all key sectors. However, apart from retailing and
wholesaling, firms’ expectations remained below long-term averages.

The September factory PMI pointed to stronger output growth (58.0)
and new orders (58.9). The services PMI indicated somewhat weaker gains
in activity (58.2) and new business (58.3), but a marked improvement in
expectations at the 12-month horizon (75.0).

So far, the recovery appears to be on track. The creation of nearly
60,000 new private sector jobs in the first half should help offset the
negative impact on private consumption from the unwinding of income
supports in the government’s stimulus program.

Risks for the medium term lie in the likely slowdown in demand
growth within the Eurozone and in Asia and the US and in domestic fiscal
tightening. While the government hopes to minimize the impact of an
unprecedented reduction in the deficit, cutbacks in public spending and
the hike in tax revenues will inevitably take their toll.

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

[TOPICS: M$F$$$,M$X$$$,M$$EC$,MT$$$$,MGX$$$]