FRANCE MAY BE RETURNING TO RECESSION, NEW DATA SHOWS
c.2013 New York Times News Service
FRANKFURT, Germany — Hopes that the eurozone could be emerging from years of torpor suffered another setback Thursday when an indicator of economic activity in the region slipped unexpectedly and suggested that France could be sliding back into recession.
The indicator, a survey of purchasing managers published by the research firm Markit, fell to 51.5 in November from 51.9 in October, according to preliminary data, as the decline in France offset further improvement in Germany. Economists had expected the composite index for the eurozone, which tracks both manufacturing and service sectors, to rise to 52, according to Barclays.
A reading above 50 is considered a sign that the eurozone economy is growing. But the index for France fell to 48.5 in November from 50.5 in October, the latest sign of shrinkage in the French economy, the second-largest in the eurozone behind Germany’s. It would be difficult for the eurozone to grow with any vigor if France were in recession.
Overall, the survey data suggested that, even though the eurozone as a whole pulled out of recession in the second quarter of this year, the recovery lacks momentum and is vulnerable to shocks, such as a sag in demand from China and other emerging markets.
“Any improvements were largely confined to Germany,” said Chris Williamson, chief economist at Markit. “France, on the other hand, showed further signs of being the ‘sick man of Europe.’”
The improvement in Germany, with the index rising to a 10-month high of 54.3 from 53.2 in October, was led by service providers, although manufacturers also reported that business was better. Services tend to be driven by domestic demand, a possible sign that Germany is becoming less dependent on exports for growth.
France’s poor performance will add to pressure on President Francois Hollande to confront the country’s structural weaknesses, like labor regulations that are widely seen as an impediment to hiring and firing.
“Make no mistake about it, France has been knee-deep in a crisis for the past few years, and one which has been exacerbated by President Hollande’s tax-driven fiscal consolidation program and his extremely weak leadership,” Nicholas Spiro, managing director of Spiro Sovereign Strategy, said in a note to clients. “Indeed, the ever bleaker economic data in France is now the most conspicuous example of the severity and protracted nature of the downturn in the eurozone.”