French economy firing up as private sector nears four-year high

[PARIS] French private sector business activity grew at its fastest in almost four years in June as the manufacturing sector pulled out of recession, suggesting the second-largest eurozone economy is finally beginning to recover.

Data compiler Markit said its preliminary composite purchasing managers index (PMI) - covering both manufacturing and the dominant services sector - rose to 53.4, well clear of the 50 mark that separates contraction from expansion and higher than any time since August 2011.

The PMI reading, while preliminary, tallies with a number of other economic indicators in recent weeks that suggest the economy may be gaining pace after a long spell of stagnation.

The timing, if it holds true, could be political gold for President Francois Hollande. He has had to overcome reluctance within his Socialist camp to spend billions of euros on tax breaks for firms which he hopes will spur investment and employment ahead of an election in 2017.

The manufacturing sector's June PMI reading of 50.5 was the first above 50 since April 2014. In services, a reading of 54.1 was the best since July 2011, versus a final May reading of 52.8.

"These figures are promising for second-quarter gross domestic product," Markit economist Jack Kennedy said.

Preliminary or "flash" PMI survey readings are revisited for a final score a few days after the initial publication.

Tuesday's PMI report showed new business expanded healthily with business expectations soared higher into the 60s.

The latest PMI readout came days after France's national statistics office INSEE said it expected GDP to rise to 1.2 per cent this year from an insipid 0.2 per cent in 2014.

It also said the pace of growth should be sufficient in the second half of the year to halt a relentless rise in France's unemployment rate, albeit at a high 10.4 per cent.

INSEE has warned the recovery remains relatively modest, however, and a separate report on business morale underscored that point on Tuesday, showing a drop in an index of industry confidence to 100 points in June versus 103 in May.

Hollande and Prime Minister Manuel Valls have resisted pressure for more drastic spending cuts to narrow the deficit in France's public finances while also facing down hardline left-wingers to offer business incentives to invest and hire. They are currently pushing through a series of reforms to loosen regulation of businesses in areas such as Sunday trading.

To win a second presidential term in 2017, Mr Hollande, will need the recovery to move into a higher gear. He hopes to have a significant drop in unemployment to hold up as a vindication of the strategy he has pursued in his first three years in office.

REUTERS