PARIS (MNI) – France’s economic recovery is likely to lose a little
steam in 3Q, as activity stagnated in industry and services in August,
the Bank of France said Wednesday, confirming its projection for GDP
growth of 0.3% on the quarter.

In June, the national statistics institute Insee had forecast a
slowdown in 3Q GDP growth to 0.4%, due mainly to a lack of support from
inventory changes. In the meantime, 2Q growth surprised on the upside
with a rebound to 0.6% and some leading indictors have signaled little
or no loss of momentum so far in 3Q.

However, the Bank of France’s latest survey suggested that industry
activity was on the whole stable in August, as growth in most sectors
was offset by a contraction in the auto industry. After a 0.4-point
downturn in July, the overall capacity utilization rate fell another 1.8
points in August to 74.5% — more than seven points below the long-term
average.

On the positive side, new industry orders increased slightly and
finished goods inventories were deemed at normal levels, the central
bank commented. Own-company expectations “point to a rebound in
production in the months ahead,” it noted.

In line with most analysts’ forecasts, the bank’s sector climate
indicator, based of the latest three months’ results, was unchanged at
101 in August for the third month in a row, down two points from the
cyclical peak in March. The long-term average is 100.

In services, activity was also little changed on the month, despite
the expansion in the computer and information sector, the central bank
said. The sector climate index slipped another point to 95 after a
one-point downturn in July.

Nevertheless, as in industry, firms’ expectations were cautiously
favorable: “The outlook for activity indicates a slight increase in the
short term,” the bank said.

Insee’s sentiment surveys from July (none are conducted in August)
showed a recovery or stability in all key sectors except for retailing.
The August PMI polls have largely confirmed these trends. Industry
output (57.3) and orders (58.0) rose at their fastest pace since April.
While services activity cooled somewhat (60.4), new business (61.8)
expanded at the quickest clip in nearly four years.

So far, the recovery appears to be on track. The creation of nearly
59,000 new private sector jobs in the first half should help offset the
negative impact on private consumption from the unwinding of income
supports in the government’s stimulus program.

Risks for the medium term lie in the likely slowdown in demand
growth within the Eurozone, in Asia and the US, and in domestic fiscal
tightening. While the government hopes to minimize the impact of an
unprecedented reduction in the deficit, cutbacks in public spending and
the hike in tax revenues will inevitably take their toll.

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

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