World Economy

French Private Sector’s Fastest Growth

French Private Sector’s Fastest GrowthFrench Private Sector’s Fastest Growth

France’s private sector has unexpectedly expanded at the fastest rate in 3-1/2 years this month, a survey showed on Friday.

Markit’s preliminary composite purchasing managers’ index jumped to 52.2 from 49.3 in January. It was the highest reading since August 2011 and the first reading above the 50-point line denoting growth since last April.

In the services sector, the PMI stood at 53.4, also the highest reading since August 2011, thanks to strong new business and business expectations. Analysts polled by Reuters had expected the service sector to contract slightly with a reading of 49.8.

The manufacturing figure, however, missed analysts’ expectations. The reading for the sector fell to 47.7 from 49.2 last month, confounding expectations for a slight improvement to 49.5.

 A Snapshot

With euro area stimulus, and the currency bloc’s relations with Greece dominating headlines recently, it is important to still analyze the underlying strength of less discussed members, such as France. Since May 2014, both iShares MSCI France Index and Currency Shares Euro Trust broadly declined. French equities, however, have shown signs of life following euro area stimulus enacted in January.

While French economic activity has recovered from the financial crisis, it currently is growing at a tepid pace. In the fourth quarter, the economic growth figure came in at a 0.2% annual pace, below the previous month’s reading of 0.4%, while coming in slightly above estimates for 0.16%.

Since peaking in 2011 at nearly 3%, France’s economy has given up nearly all of that growth over the last few years, shown below. To help spur growth, French Prime Minister Manuel Valls put forth sweeping economic reforms on Tuesday.

“[Valls] defied critics from left and right by declaring he would ram a flagship economic reform bill through parliament by decree, bypassing backbench rebels but exposing his government to a no-confidence vote.

The package, which includes rules to broaden trading hours and deregulate some sectors, is aimed at spurring growth and persuading the European Commission to give Paris more time to get its public finances into line with EU rules,” according to Reuters.

Moving to the labor market, French employment has gradually fallen since the financial crisis. In the third quarter, the employment to population figure came in at an annual pace of -0.68%, below the previous quarter’s reading of -0.31%. Since peaking in 2008, employment in France has drastically declined as a percent of the population, shown below.

With the indicator declining, the unemployment rate in France reached 10.4% in the third quarter, its highest level since 1998, according to Trading Economics. Moreover, the youth unemployment rate in France steadily rose in 2014, signaling weakness in the labor market.