French Growth Momentum Slows as Global Tensions Hit Factories

(Bloomberg) -- A rebound in French growth momentum proved short-lived after political tensions around the world hit manufacturers at the start of the third quarter.

A Purchasing Managers’ Index fell to 51.7 in July, down from a seven-month high and worse than economists predicted, a report by IHS Markit showed. While private-sector activity was supported by a fourth consecutive expansion in services, factory output resumed its contraction.

The euro weakened after the report was published and was down 0.1% to $1.1145 as of 9:18 a.m. Frankfurt time.

Fresh signs that the euro area’s second-largest economy is sputtering will boost the European Central Bank’s case to roll out fresh stimulus. The Governing Council is expected to signal after its Thursday meeting that rate cuts are becoming more likely, following up on President Mario Draghi’s promise to act unless the situation improves.

In France, “sales at manufacturers slipped back into contraction territory at a time of ongoing geopolitical tensions,” said Eliot Kerr, an economist at IHS Markit. “Softer growth in July dents hopes of a swift recovery to the long-run rate, which were beginning to materialize after June’s solid performance.”

But it’s not all doom and gloom for French businesses. Backlogs of work rose for third straight month in July, and services companies continued to hire.

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow

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