Sentiment among French businesses plunged to its weakest level in 29 months in July, while a private survey revealed that the manufacturing sector contracted at the sharpest rate in 38 months during the month.
The headline manufacturing business sentiment index fell unexpectedly to 90 in July from a revised reading of 91 in June, as manufacturers' production expectations deteriorated further.
Economists had expected the reading to remain at June's original score of 92. The latest reading matched the score recoded in February 2010. A lower reading was last seen in December 2009, when the index scored 89.
The deterioration mostly reflected the intensifying debt crisis in euro area as well as concerns about the uncertainly over the region's economic prospects.
A survey by Markit Economics showed today that manufacturing sector contracted at the fastest pace in 38 months in July. The purchasing managers' index for the manufacturing sector fell to 43.6 in July from 45.2 in June.
Economists had expected an increase to 45.5. This was the lowest reading in 38 months. The manufacturing output index dropped to a 39-month low of 43.3 in July from 46 in June.
Insee said the general production outlook, which represents business leaders' opinion on the French industry as a whole, deteriorated to -45 in July from a revised -35 a month ago. Production expectations for their own companies fell to -8 from -5.
The report noted that business leaders considered the rhythm of activity in manufacturing industry to be negatively oriented. Stocks of finished products remained steady and was below their long-term average.
Total order books were nearly unchanged, but remained very low. Export order books decreased significantly during the month.
Senior Markit Economist Jack Kennedy said business conditions in France clearly remained fragile and the rate of job shedding accelerating to the sharpest for over two-and-a-half years in July.
Markit's composite output index, that measures performance of both manufacturing and services, rose to a four-month high of 48 in July but still pointed to contraction.
According to the survey, new business received by the French private sector companies decreased for a fifth successive month in July. The rate of decline in new work eased at service providers, but was sharper among manufacturing firms.
Bank of France said earlier this month that the French economy is likely to have shrunk 0.1 percent in the second quarter of 2012 after zero growth in the first three months of the year.
by RTT Staff Writer
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