France’s economy returns to growth

France’s $ 3 trillion economy grew this month for the first time since February, as coronavirus restrictions eased and domestic consumption increased, according to a closely watched poll.
An initial reading of the country’s Purchasing Managers Index, which tracks activity in the manufacturing and services sectors, rose to 51.3 in June from 32.1 in May. Readings above 50 indicate expansion.

“France appears to be leading the pack, especially from a manufacturing sector perspective,” said Chris Williamson, chief business economist at IHS Markit, the company that publishes the survey of executives from private sector companies. The country is reaping the benefits of having companies that are more focused at the national level, he told CNN Business.

“What we are seeing in all economies is that any revival in growth is being driven by domestic demand,” said Williamson, pointing to the rebound in China as an example. “If you have an export-oriented manufacturing sector, as is the case in Germany, it acts as a buffer,” he added.

French President Emmanuel Macron said in March that no French company, whatever its size, could collapse due to the pandemic. The government will spend about $ 521 billion to help its economy recover, French Finance Minister Bruno Le Maire said in an interview with French RTL radio this month.
Europe’s largest economies further relaxed coronavirus restrictions in June, allowing many companies to reopen and increasing demand for goods and services. The initial compound PMI for countries using the euro rose to 47.5 in June, from a record low of 13.6 in April and a reading of 31.9 in May.

“The broad economic activity in Europe appears to be better than we expected for this stage of recovery in late March,” Berenberg economists said in a note to clients.

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Although production continued to decline in both manufacturing and services, contraction rates decreased significantly. Job losses also moderated, but the number of factory employees continued to decline.

“Production and demand are still falling but are no longer collapsing,” said Williamson. “The increase in the PMI adds to expectations that the lifting of the blocking restrictions will help end the slowdown as we get closer to summer,” he added.

Still, Williamson cautioned that PMI readings around the 50 level simply show stabilization in the economy. “It is not about business returning to normal. Levels have been reduced compared to what they were before the pandemic,” he said.

EU GDP is still expected to drop sharply in the second quarter, after the deepest contraction recorded in the first three months of the year.

But the “strong recovery” in PMI data suggests that GDP will not be as “catastrophically bad” as feared, economists at Capital Economics said. “Today’s data provides some assurance that the economy is recovering. But with some restrictions still in place and fears of a persistent second wave, it will be some time before activity returns to pre-virus levels,” they said in a statement. investigation Note

People eat lunch at a restaurant near the Arc de Triomphe in Paris, France, on June 18.

According to the IHS Markit, some companies continue to report weakened demand, as customers take a cautious approach to spending.

Once companies have processed the orders that were suspended during the lockouts, there may not be enough new orders to keep operations going, Williamson said.

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The challenge for governments will be to ensure that demand revives enough to allow companies to see through the recession and retain staff, he added.

France plans to extend its job support program for up to two years. Labor Minister Muriel Pénicaud told Franceinfo radio earlier this month that the government is considering measures that allow people to work reduced hours partially paid by the state.

The government has already pledged nearly $ 17 billion to protect the workforce in the country’s aviation industry, supporting people like Airbus (EADSF) and French air (AFLYY)as well as providers of aerospace components Safran (SAFRF) and Thalès.

IHS Markit’s Williamson expects the European economy to take three years to recover.

– Sophie Stuber, Charles Riley, Ya Chun Wang and Benjamin Berteau contributed reporting.