Summer puts some spring in French economy

24th July 2009, Comments 0 comments

The summer is putting a slight spring in the steps of French industrialists and consumers, but analysts warn that this economy is still fragile.

Paris – The summer is putting a slight spring in the steps of French industrialists and consumers, data shows, but analysts warn that this economic convalescence is still fragile.

French industrial confidence edged up in July for the fourth month running, the statistics institute INSEE said on Thursday, having reported on Wednesday a second-quarter rebound in consumer spending, mainly on cars.

The industrial confidence index moved up two points to 78 points. In March, this leading indicator of the business climate had fallen to the lowest point since it was created, 68 points, after 15 months of falls in a row.

"Company leaders questioned in July said that the industrial situation was improving slightly," INSEE said.

"Business people in the manufacturing industry believe that the fall in their activity which they have experienced has eased up to some degree."

But, INSEE also said: "Given their own expectations for output, the drop in activity is likely to continue for the next few months, but at a more moderate rate."

This tallies with recent comments by French Economy Minister Christine Lagarde, who said on Tuesday that the economy was at a turning point and she could see signs of a recovery in the industrial and service sectors.

"In terms of indices in most industrial and service sectors... we sense a notion of recovery," she said, adding that it was not a "total recovery."

On Wednesday, INSEE had reported a 1.4-percent rebound in household spending on manufactured goods in June after a dip in May, and of 0.7 percent in the second quarter from the first-quarter level.

Consumer spending is seen as the main driver of growth in the French economy, and data on household confidence in the economy during July is to be published on Friday.

But analysts, commenting on the industrial data, stressed that although the figures were signaling that the downturn was flattening out and prospects were improving slightly, the economy remained seriously sick.

"We can say that French industry is now past the worst and is now on the way out of recession," said economist Marc Touati at Global Equities.

"But this is more of a technical rebound than a lasting recovery. To anchor this, industry and more broadly overall activity in France needs a weaker euro, lasting low interest rates, and a halt in the rise of prices for raw materials.

"If one of these conditions does not occur, the rebound will not turn to recovery. In other words, French activity is in covalescence and any new setback could cause a relapse."

Touati said: "The French economy is still on a little holiday cloud."

At consultants Xerfi, Alexander Law said that the state of French industry was improving but remained extremely fragile. Industry was in a less catastrophic state than at the beginning of the year but was not yet free of the crisis.

Output might stabilise or even improve in coming months but the data pointed to a "technical" rebound and certainly not a recovery.

Law held to his forecast that the French economy would contract by 3.0 percent this year and would struggle to growth of about 0.5 percent next year.

At BNP Paribas, Frederique Cerisier commented that order books remained "extremely weak" and showed no real sign of improvement.

Touati and Law noted that the industrial confidence index, despite having risen for four months running by 10 points to 78 points was far below the long-term average of 100 points.

However, Touati also stressed that the most reliable leading indicator of industrial activity, the assessment of business leaders of their own production prospects, had risen by four points in the month and by 33 points from the lowest point in March.

This was one item of "really good news," he said.

AFP / Expatica

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