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Euro zone economy loses steam as France lags

Business activity in the euro zone lost steam in May, amid growing concerns about the strength of France's economic recovery.

The flash composite euro zone purchasing manager's index (PMI) fell, as expected, to 53.9 in May, according to data released by economic analysts Markit on Thursday.

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The figure marked a move lower from April's 54.0, but Markit said the region was still on track to for the best quarter for three years.

Business conditions across both the manufacturing and services sectors continued to improve, according to the data, with output and new business in services hitting its highest level since June 2011.

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Howard Archer, chief European economist at IHS Global Insight, said the region-wide data was "relatively encouraging" for future growth.

"Following disappointing GDP growth of 0.2 percent quarter-on-quarter in the first quarter, this is relatively reassuring news for hopes that modest euro zone economic recovery remains intact," he said in a note. "However, the euro zone is clearly not finding it at all easy to build up growth momentum."

France lags

But concerns about the strength of France's recovery were heightened further by the data. The region-wide PMI was dragged down by France - which has been called the "sick man of Europe" by some analysts and economists - where business activity fell into decline.

Composite PMI for the euro zone's second-largest economy slid to 49.3 in May from 50.6 in April. A reading above 50 marks expansion, whereas one below means contraction.

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It comes after France's economic growth ground to a halt in the first quarter. Gross domestic product (GDP) for the country was flat at 0.0 percent in the first three months of the year, after posting 0.2 percent growth in the fourth quarter of 2013.

Germany, meanwhile, continued to surge ahead. Its composite PMI was unchanged in May at 56.1, showing strong business activity for another month. In the first quarter, Germany's economy expanded by 0.8 percent.

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"The small fall in the euro zone composite PMI in May suggests that the region's economic recovery remains lackluster while the fortunes of the French and German economies continue to diverge," Jessica Hinds, European economist at Capital Economics, said in a note, warning that the economic growth "will still not be strong enough to eliminate the risks of deflation."

However, Bob Parker, senior adviser at Credit Suisse, said that France's economy could be about to turn around.

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"These (PMI) numbers are consistent with what we saw in the fourth-quarter GDP numbers. Now I think all of that is history," he told CNBC.

Parker pointed to the latest fiscal measures unveiled by France's new Prime Minister Manuel Valls, which he said indicated a "new, business-friendly approach".

"I think it's time to change your view on France," he added. "I think the numbers are going to progressively get stronger in the third quarter."

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