French private sector activity contracts again in July, PMI shows

By Sudip Kar-Gupta

PARIS (Reuters) -France's private sector activity shrank for an 11th straight month in July as political uncertainty weighed on business confidence in the euro zone's second-biggest economy, according to data from S&P Global published on Thursday.

The HCOB Flash France Composite PMI Output Index rose to an 11-month high of 49.6 points in July from 49.2 in June, but remained below the 50.0 threshold that separates growth from contraction.

A Reuters poll had forecast a rise to 49.3 points.

The July services sector flash PMI edged up to 49.7 from 49.6 in June, while the July flash manufacturing sector PMI also rose to 48.4 from 48.1 in June.

Demand for French goods and services also weakened further, with new orders falling at the fastest rate since February.

Business confidence deteriorated significantly, reaching its lowest level since November, as companies expressed concerns over domestic political uncertainty given opposition to French Prime Minister Francois Bayrou's budget.

Trade unions and opposition political parties have voiced discontent over Bayrou's proposal to scrap two public holidays and freeze most public spending as part of a 43.8 billion euro ($51.36 billion) budget squeeze.

"While momentum has been trending upward since the beginning of the year, the index remains below the critical 50-point threshold. This continues to signal a deterioration in economic conditions, albeit one that is only marginal," said Jonas Feldhusen, Hamburg Commercial Bank junior economist.

"Should an agreement on the austerity package be reached, it would reduce disposable income for many households - posing clear downside risks for domestic demand and especially for the services sector. Conversely, failure to reach a budget deal could further escalate political uncertainty," he added.

($1 = 0.8529 euros)

(Reporting by Sudip Kar-Gupta; Editing by Joe Bavier)