Europe Economy

Euro zone recovery losing steam as France struggles


Growth in business activity in the euro zone slowed unexpectedly in June for the second month running, easing to its weakest level since December.

Financial data provider Markit said its June PMI composite index for the euro zone came in at 52.8, against forecasts of 53.5 in a Reuters poll.

"The June PMI rounded off the strongest quarter for three years, but a concern is that a second consecutive monthly fall in the index signals that the euro zone recovery is losing momentum," Chris Williamson, chief economist at Markit said.

French business activity contracted further in June while Germany's private sector continued to expand, further highlighting the divergence between the euro zone's two largest economies.

In France, both the services and manufacturing sectors registered a slowdown amid weaker orders. Output and new orders in Germany remained strong.

The composite PMI for France, which includes the manufacturing and services sectors, fell to 48.0 from 49.3 in May. A figure below 50 signals contraction. The German composite index came in at 24.2, against 55.6 in May.

"The euro zone is still incredibly reliant on Germany," Jeremy Stretch, head of FX Strategy at CIBC told CNBC.

Hans-Peter Merten | Stockbyte | Getty Images

Paul Smith, Senior Economist at Markit warned there remained little sign of any turnaround in the performance of France's economy at the end of the second quarter, with output falling for a second successive month and at a faster rate. "The data are consistent with another disappointing GDP outturn for the second following stagnation in the first quarter."

The German economy was the stand-out euro zone performer in the first quarter, posting 0.8 percent growth in the first three months of this year as households and the government upped their spending, aided by extremely mild weather. Year-on-year, Germany's economy grew 2.3 percent, the largest increase in over two years.

That contrasts sharply with France, which failed to grow in the first quarter of this year after household expenditure and exports slowed considerably.

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