French Economy Leans on Services as Manufacturing Shrinks

(Bloomberg) --

France’s services sector drove economic growth this month, as factories grappled with issues including the coronavirus outbreak and the discontinuation of Boeing’s 737 Max airplane.

While the Purchasing Managers Index from IHS Markit showed manufacturing back in contraction, services drove an unexpected pickup in overall momentum. The news gave the euro a modest lift, and it was up 0.1% to $1.08 as of 9:18 a.m. Paris time.

The data highlight the euro zone’s split economy. European Central Bank Vice President Luis de Guindos said on Thursday that the strong labor market is bolstering domestic consumption and fending off global weakness. The worry is how long that can last.

France’s composite PMI climbed to 51.9, beating economists forecasts. A gauge for manufacturing slipped below 50, signaling a contraction for the first time since the middle of last year.

Industrial orders were hit particularly hard by a drop in international demand. A pause in Boeing’s production of its single-aisle jet following two fatal crashes has come as a shock to French suppliers.

In addition, the coronavirus outbreak in China has forced many businesses to shutter their operations in the country.

The impact of the virus is hitting hardest in Asia. Reports Friday showed manufacturing in Australia and Japan fell while early export orders for South Korea showed a slump in Chinese demand. In China itself, car sales sank 92% in the first half of February.

The French PMI report showed companies are still optimistic over the next 12 months, supported by plans for new product launches expectations for a demand pickup.

Markit will publish PMIs for Germany and the euro area later this morning, with both forecast to show a slight deterioration in February.

To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net

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