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French manufacturing recovery gathers pace

Published 10/01/2009, 03:50 AM
Updated 10/01/2009, 03:54 AM
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PARIS, Oct 1 (Reuters) - Activity in France's factories rose at their fastest pace in 19 months in September, a survey of purchasing managers showed on Thursday, in a sign that the recovery is advancing in the euro zone's second-biggest economy.

The Markit/CDAF final manufacturing purchasing managers' index (PMI) jumped to 53.0 in September from 50.8 in August, hitting its highest since February 2008.

This was the second consecutive month that the reading has exceeded the 50 mark separating growth from contraction.

Prior to August, when the index broke through the 50 barrier, activity in the sector had been in decline for 14 straight months.

"The rebound in French manufacturing continued in September," said Jack Kennedy, an economist at Markit.

"With firms having cut inventories sharply in the wake of the downturn, the recent firming of demand has supported a bounce in output," he said.

The factory output index climbed to 57.6 in September from 54.7 the previous month, reflecting the sharpest rate of increase since November 2006.

September's PMI data offered encouraging signals on the prospects for economic growth in the second half of the year, and will help to allay concerns that the recovery may falter.

Like Germany, France began to emerge from its recession much earlier than expected, with a surprise 0.3 percent rise in gross domestic product in the second quarter, and questions have been raised as to the sustainability of the trend.

But the PMI survey showed both global and domestic demand were continuing to pull back from the dramatic slump which followed the collapse of Lehman Brothers last autumn.

The final factory new orders index jumped to 57.3 in September from 53.8 the previous month, indicating the fastest level of growth in close to three years.

At the same time, export orders rose at their strongest rate since December 2006, and Markit said firms surveyed saw a pick-up in sales to Asia, Europe and the United States.

September's PMI survey will reinforce the sentiment that inflationary pressures remain limited across the economy despite the nascent recovery and record low interest rates.

The majority of manufacturers questioned said they continued to slash prices at a sustained pace over the month in a bid to attract new custom and stave off competition.

The main black spot in this brightening picture remains unemployment which is rising steadily in France and threatens to drag on consumer spending, making economic recovery fragile.

September's survey gave little grounds for optimism on unemployment respect as firms shed jobs for the 17th consecutive month, at a rate well above the historical average.

France's jobless total stood at 2,553,300 at end-August, up 25.8 percent compared to the same period last year, and the government has predicted that the trend will worsen in the near term, even as economic growth kicks in.

(Reporting by Vicky Buffery; Editing by Victoria Main)

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