France’s business slump moderated more than expected in July as the outlook for the manufacturing sector improved, a poll showed on Wednesday – more evidence of an emerging recovery in what is the eurozone’s second-biggest economy.

Data compiler Markit said a preliminary reading of its Purchasing Managers Index for the manufacturing sector rose to a 17-month high of 49.8 from 48.4 in June.

The improvement brought the index within a fraction of the 50-point threshold between contraction and expansion and easily beat economists’ expectations for a reading of 48.8 on average.

Meanwhile, the index for the service sector rose to an 11-month high of 48.3 from 47.2 in June, topping estimates for a reading of 47.6 on average.

“French companies are able to win contracts abroad, they’re boosting their sales, they’re being more competitive,” Markit chief economist Chris Williamson said, although he ruled out a rapid return to growth.

The better-than-expected data add to an improving outlook which prompted President François Hollande earlier this month to declare a recovery was under way after the economy suffered a short, shallow recession around the turn of the year.

The improvement in manufacturing and services brought the overall composite index including both to its highest level in 17 months, rising to 48.8 from 47.4.

Manufacturers reported output had begun expanding for the first time in nearly one-and-a-half years while new orders for export returned to growth for the first time in as long.

The pace of job shedding at French companies was its slowest in 15 months as backlogs grew in the manufacturing sector, a welcome sign with jobless claims already at record highs.

Though the economy is widely expected to gain some momentum through the course of the year, the Government expects it to post roughly flat growth overall in 2013.

But with unemployment high, consumer spending weak and businesses cautious about investment, private economists expect the economy to contract 0.3 per cent this year.