PARIS, (Reuters) - French business activity shrank at a slower rate in July thanks to a solid performance in the service sector, a survey showed on Thursday, but data compiler Markit said business sentiment may slide in the months to come.
Markit's composite purchasing managers index of both the manufacturing and services sector rose to 49.4 from 48.1 in June, bringing activity closer to the 50-point line dividing growth from contractions.
Markit chief economist Chris Williamson said, however, that the index was likely to slip again in the coming months as worries over the impact of the war in Ukraine combine with France's own economic woes.
"The domestic economy remains very much entrenched in the malaise we've seen in recent months," he said. "French manufacturers are struggling in export markets as well as at home."
The services sector did better than analysts polled by Reuters expected, with activity growing for the first time in three months. The sector's index jumped to 50.4 from June's final reading of 48.2, easily beating a forecast for 48.4.
The manufacturing industry disappointed, however, with a seven-month low reading of 47.6, down from a final 48.2 last month and below a forecast of 48.1. "PMI data remain consistent with quarterly GDP close to stagnation levels, as the economy continues to show little sign of turning around its recent sluggish performance," said Markit economist Jack Kennedy.
France's economy posted no growth in the first three months of the year, complicating the government's target to bring the public deficit in line with EU targets next year. Analysts polled by Reuters estimate the economy will grow less than forecast by the government this year and next.
(Reporting by Ingrid Melander; Editing by Hugh Lawson)