World Economy

French Factories Faltering

French Factories FalteringFrench Factories Faltering

France’s private-sector economy showed signs of stagnation in July as a continued slump in manufacturing output erased a return to growth in services.

A composite purchasing managers’ index stood at 50 in July, the threshold that divides expansion from contraction, according to Markit Economics. It had fallen to 49.6 in June. A gauge for manufacturing increased to 48.5, while a measure for services rose to 50.3, Bloomberg reported.

So far, the French economy has been registering its strongest annual expansion since 2011. Even after the British vote to leave the European Union, both the finance ministry and the International Monetary Fund maintained their forecasts for France to show growth of 1.5% in 2016.

Even so, economists are watching for any signs that French exporters are suffering from turmoil in the neighboring UK and, more recently, whether the terrorist attack that killed 84 people this month in Nice might hurt the tourist industry, which generates about 7% of gross domestic product.

“The latest PMI data shows a French private-sector economy treading water at the start of the third quarter,” said Jack Kennedy, a senior economist at Markit. “A slight expansion of services activity again acted to offset a faltering manufacturing sector weighed down by falling new orders.”

With services firms’ expectations falling to the lowest level so far this year, Kennedy sees evidence that the “lackluster trend in activity is likely to persist through the second half of 2016.”

 ‘A Good Result’

Markit’s German composite index will be released later, with economists predicting it will slide to 53.6 from 54.4. A eurozone gauge is predicted to slow to 52.5 from 53.1.

Meanwhile, Chris Williamson, chief economist at Markit, said, “In the face of the terrorist attack and the Brexit vote, to have the index coming up to 50.0 in a stable economy is perhaps a good result.”

The resilience came largely from the service sector, where the index rose to a better-than-expected 50.3 from 49.9 in June as the flow of new business improved and firms increased headcount. The index for manufacturing remained in contraction territory, although it improved to a four-month high of 48.6 from 48.3 in June instead of the deterioration expected by economists polled by Reuters.

The rise in overseas new orders for the first time in seven months might result in a weaker euro or that French businesses might be picking up some trade from their British competitors after the Brexit referendum in June.