EU flag is seen in front of the EU Commission Headquarters on March 14, 2013 in Brussels, ahead of te two-day European Union summit. European Union leaders try Thursday to find a difficult balance between austerity policies adopted to cut debt and calls to spend more to generate growth and jobs in an economy stuck in the doldrums

French business activity slumped to a seven-month low in December, exacerbating concerns about the fragility of the eurozone’s second-largest economy.

The disappointing French reading hampered a stronger improvement in the broader eurozone, which registered its best quarter in two-and-a-half years.

France’s “flash” reading of Markit’s Purchasing Managers Composite index for this month fell to 47 from 48 in November, accelerating its decline and producing yet another reading below 50, the level that separates expansion from contraction.

“[The readings] paint a worrying picture of the health of the French economy. The return to contraction in November has been followed up with a sharper reduction in December, with falling new business at the heart of this as clients were reportedly reluctant to commit to new contracts,” said Andrew Harker, senior economist at Markit.

For the eurozone, the composite reading rose to 52.1 from 51.7 in November, reversing two months of slower expansion. Growth in new orders rose the most since June 2011, while the manufacturing PMI rose to 54.8 from 53.1, the highest in nearly three years.

The reading was helped by continued expansion in Germany, albeit at a slower pace than in recent months. Its composite PMI reading was 55.2 compared with 55.4.

Improvement outside the eurozone’s biggest two economies also helped the rise, Markit said, as output rose for a fifth month and at the fastest pace since April 2011.

Markit called the rise a “relief”, but said that the PMI readings point to a weak 0.2 per cent GDP growth for the fourth quarter, suggesting the recovery “remains both weak and fragile”.

The region’s growth prospects were, however, boosted by a strong rise in exports.

The euro area’s trade surplus soared to €17.2bn in October, up from €10.9bn the previous month, figures published by Eurostat, the European Commission’s statistics bureau, on Monday showed.

The first estimate from Eurostat revealed seasonally adjusted exports rose by 0.2 per cent, while imports fell by 1.2 per cent.

“The improved trade performance in October lifts hopes that net trade can make a much-needed renewed overall positive contribution to eurozone GDP in the fourth quarter and help it pick up from expansion of just 0.1% quarter-on-quarter in the third quarter,” said Howard Archer, economist at IHS Global Insight.

But a more detailed breakdown of the data for September showed trade in the region was weaker than originally thought. The overall surplus was cut from an preliminary estimate of €13.1bn.

The latest PMI indicators add to conflicting signals about the state of the French economy.

They follow similar Markit indicators for the private sector earlier this month that pointed to a fall in GDP in the fourth quarter. Many big companies are ploughing through large redundancy programmes and investment levels have been low. A recent spate of protests against high taxes have reinforced a sense of pessimism voiced by many businesses about the outlook.

But in an interview with the Financial Times last week, Pierre Moscovici, finance minister, insisted that industrial production was recovering and consumption - the engine of growth in France - was holding up. “France has truly emerged from recession,” he said.

He pointed to surveys by Insee, the national statistics institute, and the Bank of France which have painted a rosier picture. Insee has forecast 0.4 per cent growth in the fourth quarter, after a 0.1 per cent reverse in the third quarter. The Bank of France this month upped its forecast by a notch to 0.5 per cent, based on improving production.

“Weak French PMIs likely reflect ongoing political uncertainty and continued weak demand,” wrote Barclays in a note to clients. “But overall we remain cautious regarding what we believe is an excessively strong pessimistic signal.”

It said over the past two years PMIs had repeatedly underestimated activity in France, pointing to sharp quarterly declines, “while hard data came in on average slightly recessionary at worst”. Barclays is forecasting 0.2 per cent growth i the fourth quarter.

BNP Paribas made similar comments. It said that while the data are “a sign of weakness for future economic activity”, the PMI indicators are the “least reliable” of all indices and noted the diverging data from France.

France’s services activity index dropped to 47.4 from 48, while the manufacturing PMI fell to 47.1 from 48.4.

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