The Bank of France raised its projection for economic growth in the second quarter on Thursday, attributing the upward revision to stronger activity in June across industry, services and construction.
After previously forecasting flat growth for the quarter, the central bank now expects France - the euro zone's second-largest economy - to expand by 0.2% in Q2. This update comes on the heels of a 0.1% decline recorded in the first quarter.
According to the central bank, activity in June recovered following a weak May period that was affected by a series of public holidays. Firms adapted to an unprecedented heatwave late in the month by changing working hours to avoid the hottest parts of the day, enabling most businesses to continue operating.
While the extreme temperatures interrupted some construction work and required factories to alter schedules, the Bank of France said companies largely averted major disruptions. The heatwave also created pockets of stronger demand in the services sector - hotels saw greater patronage from customers seeking air-conditioned rooms and orders for cooling systems rose.
The revision to the growth forecast was driven principally by services, with gains in consumer services, information and communication, hospitality and transport cited as key contributors. Manufacturing activity also supported the upgrade, although construction was still expected to contract over the quarter, the bank noted.
The central bank cited results from its monthly business sentiment survey of 8,500 firms, which showed an improvement in industry activity in June and a rebound in services and construction. Manufacturing orders were described as being around normal levels, and an uncertainty indicator retreated to the level it held before the Iran war began on February 28.
Companies surveyed did point to ongoing concerns, naming international tensions and input costs among their worries. However, the Bank of France said supply chain strains and pressure from raw material and energy prices have eased compared with earlier peaks this year.
Looking ahead, business leaders expect activity to continue expanding in July compared with June, albeit at a more moderate pace in industry and services and only slightly in construction.
Journalist note: The Bank of France's updated forecast reflects firm-level adjustments to weather-related disruption and an improving tone in services and industry during June. The bank's survey findings underline a mixed picture with easing supply pressures but persistent concerns about geopolitical tensions and input costs.