French economy suffers two setbacks, day after Alstom deal

23rd June 2014, Comments 0 comments

The outlook for the French economy suffered two setbacks on Monday with official data showing a high payments deficit, and a leading survey suggesting that output might be shrinking.

Figures from the Bank of France showed that the balance of current payments in and out of the country stayed high in 2013, at 30.3 billion euros ($41 billion).

That is equivalent to 1.4 percent of annual production by the economy, the bank said.

An important factor was a deficit in trade with the eurozone and particular with Germany, although the overall trade balance improved because imports fell.

The French government has blamed the high value of the euro for part of the flagging competitiveness of French industry, but some analysts have noted that exports to some non-euro countries have held up whereas France encounters difficulties in competing within the euro area.

The balance of payments on current account measures all current payments into and out of a country, including payments for trade, but also investment income and wages sent home by immigrant workers, for example.

It is a good medium-term indicator of the ability of a country or economic zone to pay its way in the world. Deficits on the external accounts tend to crimp overall growth

"This deficit does not show any real improvement from the figures for 2012 which was 31.8 billion euros," the central bank said during a press conference.

The balance of trade in goods and services continued to improve, showing a deficit 24 billion euros which was 6.0 billion euros less than in 2012.

"This fall in the deficit for goods and services reflects a fall of imports of goods, which dropped 2.0 percent to 480 billion euros," the bank said.

Exports amounted to 437 billion euros.

The "essential" factor in the deficit for trade in goods "comes from an imbalance of trade with the eurozone, in particular with Germany," the bank said.

Meanwhile, a leading indicator of the outlook for performance of private-sector businesses in France, accelerated downwards in June, a closely watched survey by the Markit financial consultancy showed.

The purchasing managers' index survey turned in a figure of 48.0 points, disappointing analysts and pushing down the French stock market.

The indicator had stood at 49.3 points in May, just below the 50 level which separates an outlook for contraction from one of growth.

- Orders for French industry falling -

This was the lowest reading for four months, and the figure was pulled down by weak signals from the industrial sector, just as the Socialist government tied up a deal to sell part of power-to-rail group Alstom to US firm General Electric.

That case is seen as a high-profile example of the strains besetting the French industry. The weekend deal involved a part-nationalisation of Alstom.

The Markit survey found that the index for the manufacturing sector alone fell to 47.8 points in June from 49.6 points in May, and to the lowest level for six months.

A fall in new orders for industry was accelerating, Markit said. This was particularly worrying since it concerned orders from within France as well as from abroad.

This was weighing on already record unemployment. The rate at which jobs were being cut was running at the highest level for four months, Markit said.

Markit economist Paul Smith said: "There remained little sign of any turnaround in the performance of France's economy at the end of the second quarter, with output falling for a second successive month and at a faster rate. The data are consistent with another disappointing GDP outturn for the second quarter following stagnation in the first quarter.

"On these trends the economic underperformance of France seems set to persist well into the second half of 2014."

At Natixis bank, analyst Johannes Gareis said that the big point of concern was again the divergence between the two heavyweights, with robust growth in Germany and deepening signs of contraction in France.

Capital Economics commented that the Markit figures "highlight France's stuttering recovery" which would "remain too weak to significantly erode the country's high unemployment and public debt for a while yet".

© 2014 AFP

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