PARIS (MNI) – French economic growth is likely to pick up slightly
in 2Q, with support from both industry and services, the Bank of France
said Monday, forecasting GDP growth of 0.5% on the quarter.

Last month the central bank confirmed its estimate for 1Q GDP
growth of just 0.4% after the acceleration in 4Q growth to 0.6% with a
boost from inventory changes and new car purchases. Most analysts
suspect the central bank’s 1Q GDP call is a bit optimistic. Preliminary
estimates for 1Q growth will be released Thursday.

The bank’s first estimate for 2Q growth, based mainly on its
monthly business survey, is a tricky one, since signals for the
near-term course of the economy vary widely. The PMI polls remain
upbeat, with a composite output figure for industry and services in
April of 59.2, pointing to robust growth at the start of 2Q. The
composite new orders index of 59.8 — a 40-month high — suggests that
demand will spur even stronger growth in the months ahead.

But national statistics office, as usual, is more cautious,
predicting GDP growth of only 0.2% in 2Q and 0.3% in 3Q, as consumers
retrench after the 4Q spending spree and business continues to pare
investment. Manufacturing has stagnated since last summer. Even if firms
have reported a pick-up in recent months, their outlook for the near
term is still slightly below par, as they say fading foreign demand is
weighing on new orders.

The Bank of France’s survey from April showed a slight pick-up in
all industry sectors except for autos, a decline in orders led to a drop
in output. The overall capacity utilization rate edged up 0.2 point from
March to 75.6%, still over six points below the long-term average. Order
books remained overall “close to normal levels” and finished goods
inventories were at desired levels, the central bank commented.
“Forecasts for the coming months continued to point on average to a
slight rise in activity,” it said.

However, contrary to analysts’ expectations, the bank’s sector
climate indictor, based of the latest three months’ results, slipped
back two points in April, returning to December’s level of 102, just
above the long-term average of 100.

In the services, growth picked up slightly as well, still driven by
the recovery in temporary work and by an improvement in IT services,
technical engineering and road transport. But sector climate remained
below-par at 95, despite a two-point rise on the month.

The outlook for services activity and demand for the months ahead
appears overall, “relatively favorable,” the bank said.

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

[TOPICS: M$F$$$,M$X$$$,M$$EC$,MT$$$$,MGX$$$]