France’s Services Shrink With Manufacturing as Demand Falters

France’s manufacturing and services industries shrank in September, in a sign the outlook for the euro area’s second-largest economy is continuing to deteriorate.

A Purchasing Managers Index for the two industries fell to 49.1 from 49.5 in August, staying below the 50 mark that denotes expansion for a fifth month, London-based Markit Economics said today. Economists had forecast a decline to 49.4. While a factory gauge rose to 48.8 from 46.9, it still signaled retrenchment, and a services index fell to 49.4 from 50.3.

With an economy that failed to grow in the first two quarters and a budget deficit that’s rising for the first time in five years, today’s data add to evidence that France will probably stagnate in the second half. European Central Bank President Mario Draghi said yesterday that the euro area recovery is losing momentum.

“Anemic demand continues to hold back the private sector, with further price cutting insufficient to prevent new orders from falling,” said Jack Kennedy, an economist at Markit. “Firms responded to the continued weakness by lowering employment at the sharpest rate since February.”

An index of new orders fell to 49.4 from 50.6, the data showed.

Manufacturing and services activity probably also slowed in Germany, economists said, with an index due for publication at 9:30 a.m. Frankfurt time forecast to slide to 53.5 in September from 53.7. A similar gauge for the euro area was unchanged at 52.5, they predicted before that data is released at 10 a.m.

Draghi said yesterday that policy makers can implement more stimulus if required to stave off the threat of deflation in the euro area.

Risks to growth in the currency bloc “are clearly on the downside,” he told lawmakers in Brussels. “Recent indicators gave no indication that the sharp decline” in economic activity in the region has stopped, he said.

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