PARIS (MNI) – French economic activity contracted in May but could
pick up somewhat in the near term, the Bank of France said Friday,
citing the results of its monthly business survey.

Still, the central bank revised down its projection for 2Q GDP from
flat to -0.1%. In March, the national statistics Institute Insee had
hoped for a modest upturn in 2Q, banking on a pick-up in investment to
offset stagnating private consumption. Since then, however, leading
indicators have deteriorated, especially the PMIs.

The central bank’s latest survey indicated that industry output
contracted in May, “in particular in the automotive and metal-working
sectors.” Capacity utilization dropped half a point to 76.9%, falling
further below average.

Prices were stable and staff levels diminished slightly, the
central bank said.

Despite a decline in order books “due to lower demand” and slightly
above-target inventories, the central bank expects industry activity to
improve “slightly” in the short term. Overall output expectations for
June rebounded 18 points to +5 after an 11-point drop in May.

The central bank’s sector climate indicator, based on the latest
three months’ results, slipped one point to 93, in line with most
analysts’ forecasts, after a one-point downward revision for April.

Other leading indicators for industry point to weaker activity
ahead. Insee’s index of own-company expectations is far below normal and
the factory PMI plunged to a three-year low of 44.7 in May, with new
orders even weaker at 41.6.

France’s services sector contracted as well in May, “especially in
the temporary work, transport and hotel-catering,” the central bank
said, adding that staffing was overall stable and prices declined
slightly.

The outlook for services activity in June also bounced back
smartly, regaining 16 points to +4 after a 15-point dive for May. The
services climate indicator was down one point as well to 93.

France’s services PMI slipped to a seven-month low of 45.1 in May
with falling new business (45.8) pointing to weaker activity ahead.
Insee’s sector barometer fell to a three-month low, with forward-looking
components quite negative.

–Paris newsroom +331 4271 5540; e-mail: ssandelius@marketnews.com

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