Economy & Finance

Recession stalks France as business slump hits crisis levels

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PARIS (Reuters) – French business activity shrank in March at the fastest pace in four years, defying expectations for an improvement and probably plunging the euro zone’s second-biggest economy into a recession, a survey showed on Thursday.

Data compiler Markit said its preliminary composite purchasing managers’ index, covering activity in the manufacturing and services sector combined, came out at 42.1, falling from 43.1 in February.

The drop brought the index to its lowest level since March 2009, when France and much of the developed world was mired deep in a recession triggered by the financial crisis.

Separate figures for the services and manufacturing sectors showed that business activity was retreating even faster than economists polled by Reuters had forecast.

Markit chief economist Chris Williamson said the figures suggested the nearly 2 trillion euro economy could contract by as much as 0.7 percent this quarter after slumping 0.3 percent in the previous three months.

That would mean that France, which has already abandoned its 2013 deficit target due to the lack of growth, has entered its third recession since the financial crisis.

“At the moment I can just see contraction, and potentially an increased rate of contraction as the year goes on unless more is done to stimulate growth and boost business and consumer confidence,” Williamson told Reuters.

“Otherwise companies and households will move increasingly into cost-cutting measures,” he added.

The index for the services sector, which generates 56 percent of French economic activity, dropped to its lowest since February 2009, hitting 41.9 compared with 43.7 in February.

Economists polled by Reuters had forecast an increase to 44.0.

The long-suffering manufacturing sector fared only slightly better, with its index unchanged from February at 43.9, although that also missed economists’ forecasts for an improvement to 44.3.

Williamson said falling new export orders were a sign that French companies were failing to tap into improving foreign demand in major economies such as the United States.

“There is growth out there but companies just need to be more proactive to find it at the moment,” he said.

The increasingly dire state of French business is all the more alarming as consumers, traditionally a major driver of the economy, are in no place to pick up the slack.

Unemployment is above 10 percent and there is no sign that it will fall any time soon, which is weighing on consumer spending.

It also explains in large measure why President Francois Hollande’s approval ratings are at record lows less than a year into his term in office, which he won on promises to revive growth and boost jobs.

(Reporting by Leigh Thomas- Editing by Hugh Lawson)

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