French economy ‘on verge of stalling’… again

There was more bad news for the French economy on Thursday, this time in the form of a business activity survey of the country's private sector which suggested the economy was grinding to a halt again.

French economy 'on verge of stalling'... again
Clouds gather over the financial district in La Defense Paris as the French economy looks set to stall again, according to one survey. Photo: AFP

Growth in business activity in France's private sector slowed in April amid signs that the eurozone's second-biggest economy was on the verge of stalling, a key survey showed Thursday.

The Purchasing Managers Output Index by London-based Markit Economics dropped to 50.2 points in April from 51.5 points the month before.

The closely watched index remained just above the 50-point mark that divides expansion from contraction, and below the median estimate for an increase to 51.8 in a survey of economists conducted by Bloomberg.

Service sector growth almost stagnated and factory output moved further into decline alongside an increased loss of export orders and sluggish domestic demand, Markit said in a statement.

"Output growth stuttered almost to a halt in April, signalling a continuation of the moribund economic environment in France," Markit economist Jack Kennedy added.

The French economy expanded at a sluggish rate of 0.4 percent in 2014 as the government battled stubbornly high unemployment.

President Francois Hollande has launched a two-pronged attack to tackle joblessness and push for growth.

The first is known as the Responsibility Pact, a series of tax cuts for businesses in return for job creation.

The second is a package of reforms aimed at opening up France's closed economy, including extending the number of Sundays per year when stores can open their doors.

The government has forecast at 1.0 percent in 2015, rising slightly to 1.5 percent in 2016 and 2017.

Like other countries in the euro area, France is hoping the European Central Bank's stimulus programme will also help boost growth.

But those hopes dimmed on Thursday as Markit's PMI for the entire eurozone showed business activity slowed in April to 53.5 points from 54 points in March.

"The slowdown in April was… a symptom of weaker expansions in both Germany and France, with the latter suffering a near-stalling of growth led by an accelerating downturn of its manufacturing economy," said Markit chief economist Chris Williamson.

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UK economy leapfrogs France, new study claims

There was more bad news for France on the economic front on Wednesday as another study claimed that the British economy was currently in the process of overtaking the French as Europe’s second largest.

UK economy leapfrogs France, new study claims
Ouch. France overtaken by the UK as the world's 5th economic power. Photo: Oli Bac/Flickr

While the jury is still out, the evidence is growing to suggest the UK economy is currently in the process of overtaking France’s.

The latest think tank to produce a study with that conclusion is the UK’s National Institute of Economic and Social Research (NIESR), which believes France will grow at just 1.3 percent this year compared to the UK’s growth rate of 2.5 percent.

Simon Kirby, principle research fellow at NIESR, said Britain was expected to overtake France both in terms of purchasing power parity (PPP) – which adjusts for living costs – and at market exchange rates.

“When you compare the two economies, it’s really been a story over the past few years of a relatively subdued domestic economy in France, with a lacklustre housing market, consistent falls in housing investment and most of all subdued consumer spending,” said Mr Kirby.

“An elevated unemployment rate of 10pc, as well as general uncertainty within the monetary union has also been an important factor.”

The study is not the first to show a symbolic shift in Europe’s economic league table. In January, figures from the European Commission’s website revealed that France’s GDP was less than the UK's over 2014.

Newspaper Le Figaro reported that France's GDP, that is, the wealth created by the country, was estimated at €2,134 billion, while the UK’s was quoted as €2,232 billion.

Christophe Blot from the French Economic Observatory in Paris said at the time that such league tables were of little importance.
"It’s not really a surprise that the UK is above France given the problems the French economy has faced, such as record unemployment and a lack of growth," he told The Local.
"Of course the data will be used by politicians and the French bashers and it is a blow to morale but it doesn’t really matter. We are all aware of the problems in France over the last few years but the question is how can we boost growth in the French economy? That’s all that matters.”