–Adds Details On Wholesaling, Construction and Industry Investment

PARIS (MNI) – French economic growth recovered somewhat in 2Q,
bolstered mainly by growth in the services, the Bank of France said
Thursday, revising down by 0.1 point its GDP growth forecast to +0.4%.

But growth is likely to lose momentum again in the months ahead,
the results suggested.

The central bank had underestimated the slowdown in 1Q GDP growth
to +0.1% by 0.3 point. The national statistics institute Insee, which
had forecast 0.2% growth for 1Q, expects +0.5% in 2Q.

The Bank of France’s survey from June signaled modest growth in all
industry sectors except for autos and other transport equipment, where
falling orders led to a drop in output. The overall capacity utilization
rate edged up 0.4 point from May to 76.7%, still more than five points
below the long-term average.

Order books were assessed slightly above average and finished goods
inventories close to desired levels, the central bank commented.
“Forecasts point to stable levels of production in the coming months,”
it said.

In line with most analysts’ expectations, the bank’s sector climate
indictor, based of the latest three months’ results, slipped another
point in June, returning to December’s level of 100 and the long-term
average.

In the services, activity continued to expand, but at a “much
slacker” pace than in May, reflecting a slowdown in IT services and
temporary work, the BoF said. The sector climate index stabilized below
par at 97.

“The outlook for activity indicates a moderate increase in activity
in the short term,” the bank said.

Comparable signals can be gleaned from Insee’s sector surveys.
Industry morale also eroded in June, as weaker orders dampened
companies’ near-term production outlook markedly.

Insee’s services survey gave similar results, with sentiment
slipping somewhat further below the long-term average and prospects for
slower growth in the months ahead.

The PMI polls are also slipping. The factory PMI shed another
point in June to 54.8, down 1.8 points from the recent peak in April.
The services PMI fell 0.6 point to 60.8.

The principle risk for the medium term is private consumption, the
traditional motor of French growth. Spending on manufactured goods has
been heading south since public incentives for new car purchases were
cut back in January, falling 1.9% in 1Q and another 0.4% in April-May.
These trends are in line with Insee’s projections and need not
jeopardize its forecast for a modest pick-up in 2Q GDP growth.

Still, with wage gains at a decade low, unemployment still trending
higher and public income supports being cut back, consumption could well
remain anemic for some time after stagnating in 1Q. Consumer sentiment
eroded to a 13-month low in June, as mounting job worries weighed on
expected living standards.

Indeed, the quarterly supplement to the BoF survey signaled a
stabilization in the wholesale activity in 3Q after a pick-up in sales
and orders in 2Q.

In contrast to other leading indicators, the BoF survey pointed to
an increase in construction activity in 2Q, due to a rebound in civil
engineering. With order books were assessed at “normal” levels, firms
expected a further expansion ahead, again led by civil engineering.

The quarterly supplement also signaled an upturn in investment
outlays in industry and a recovery in gross operating profits and cash
positions.

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

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