Business activity in the eurozone’s two largest economies is diverging sharply, with France’s private sector contracting after two months of growth while in Germany it accelerated to a 10-month high, according to a survey.

The broader eurozone recorded a fifth successive month of growth but the rate of expansion eased for the second month running.

Employment levels and order books in France both fell at the sharpest rate since May, underlining the weakness of the recovery in the eurozone’s second-biggest economy.

The French economy shrank by 0.1 per cent in the third quarter and Markit Economics, which compiles the survey, said Thursday’s data suggest the economy will also contract in the current quarter, sending the country back into recession.

The euro fell against the dollar on the French PMI data but recovered almost all of its losses when the German survey was released to trade at $1.3426.

Both the European Union and the OECD, the Paris-based club for developed economies, have urged France to implement more reforms.

The survey is further bad news for France after a downgrade by Standard & Poor’s, the US rating agency, earlier this month and comes amid widespread protests against imminent tax rises. But France’s central bank is much more optimistic, forecasting this month that the economy is set to gain momentum towards the end of this year and grow by 0.4 per cent in the final quarter.

Markit’s composite purchasing managers' index flash reading for France fell to 48.5, a five-month low, from 50.5 in both September and October. In Germany, the corresponding figure jumped to 54.3 from 53.2, while for the 17-nation single-currency bloc it dropped to 51.5 from 51.9. A reading below 50 signifies contraction.

Jack Kennedy, Markit senior economist, said the French survey highlighted “a disappointing slide in activity following two months of marginal growth”.

“Renewed weakness was evident across both services and manufacturing, and the poor set of figures underline the fragility of the economy in the face of a persistently anaemic demand environment. Although remaining above the levels seen in the first half of the year, PMI data highlight the risk of a return to recession for France.”

The French flash services activity index shrank to 48.8 from 50.9, a four-month low and the flash manufacturing PMI fell to 47.8 from 49.1 in October.

Expectations regarding future activity dipped to a six-month low, with survey respondents commenting on “a tough business climate and weak demand”, Markit said.

France dragged down the employment figure for the eurozone, where private sector joblessness increased for the twenty-third consecutive month, according to the survey.

Tim Moore, author of Markit’s Flash Germany PMI survey, said the figures suggest that “the German economy has built up a head of steam through the final quarter of 2013 and is well on track to achieve growth of close to 0.5 per cent for the calendar year”.

“There are also signs that solid growth momentum should be sustained over the months ahead, as new business received by private sector companies increased at the steepest pace for almost two-and-a-half years,” he added.

The flash services activity index for Germany was 54.5, a nine-month high, and the flash manufacturing PMI was 52.5, a 29-month high. For the eurozone the figures were 50.9 – down from 51.6, and 51.5, up from 51.3 respectively.

Marie Diron, of EY Eurozone Forecast, described the eurozone data as “slightly disappointing”.

“Another month of eurozone PMIs at similar levels would force us to revise our already cautious forecast for growth at the end of 2013 and possibly early 2014,” she said. “So far we are forecasting GDP to increase by 0.9% in 2014. This should be enough to stabilise unemployment but will not be sufficient to lead to significant job creation.

“If growth continues to disappoint, the risk of deflation in the eurozone will heighten. We expect that, in this scenario, the European Central Bank will relax monetary policy further. Bold actions will be needed to keep the eurozone safely out of deflation.”

Separately, Greece’s government forecast on Thursday that the country would emerge from its six-year recession next year. Christos Staikouras said after the budget was submitted to parliament that it forecast growth of 0.6 per cent; the estimate for this year is a contraction of 4 per cent. These mirror figures published by the European Commission earlier this month.

Markit on Thursday also published, in conjunction with HSBC, its flash manufacturing PMI for China, which came in at 50.4, down from 50.9 in October and a two-month low. This survey is less well established than the European counterparts and Beijing produces its own version, which is more closely watched.

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