France's economy has taken another blow - with manufacturing output slumping by an alarming 2.3% in May.

Statistics body INSEE said manufacturing output fell "dramatically" during the month.

The wider measure of industrial output also fell, by 1.7%, which will fuel concerns over the eurozone's second largest economy.

The survey suggests France's industrial sector struggled badly in May, with almost all industries reporting a drop in output.

Electrical and electronic equipment production fell by 4.9%, and transport manufacturing fell 3.5%.

And output in the manufacture of coke and refined petroleum products "plummeted" by 8.4%, INSEE reported.

So what happened?

French public holidays may have exacerbated the downturn. INSEE says three holidays fell on Thursdays, meaning firms may have shut down on the Friday too.

But as this graph shows, French manufacturing output has fallen by 0.9% over the last three months, as its economy struggles.

Photograph: INSEE

France isn't alone, though. Recent data has shown that German and UK industrial output also fell in May, making some analysts wonder if the European economy hit trouble during the month....

The eurozone recovery is weak, its financial markets too fragmented, and the region risks falling into deflation, the International Monetary Fund has warned. The IMF urged members to shore up the single currency bloc, including repairing bank balance sheets and stepping up reforms to boost employment. It repeated a recommendation that the European Central Bank should be ready for quantitative easing should inflation stay too low. The Washington-based body concluded after its latest visit to the region that the euro area recovery was taking hold and action by national politicians and the ECB had helped boost investor confidence. But the euro-skeptic outcome of the European elections posed risks to the single market and the economic recovery was "neither robust nor sufficiently strong". "The recovery is weak and uneven. Inflation has been too low for too long, financial markets are still fragmented, and structural gaps persist: these hinder rebalancing and substantial reductions in debt and unemployment," said the report. It was completed in June, before troubles at one of Portugal's biggest banks sparked the latest bout of jitters in financial markets. The suspension of shares in Banco Espírito Santo last week prompted panic selling on both sides of the Atlantic amid concerns it would lead to a wider run on the eurozone's debt-ridden banking sector.  While markets have recouped some of their losses following reassurances from policymakers that the problems are contained, analysts said last week's turbulence was a wake-up call over unresolved problems.  The IMF highlighted "lingering damage" from the crisis, such as high unemployment, particularly among young people, and said that activity and investment were yet to return to pre-downturn levels. Growth was unevenly spread across countries and the flow of credit to businesses in stressed economies was contracting. "Weakness in banks' balance sheets and uncertainty about their quality are contributing to fragmentation, constraining the ability and willingness of banks to support credit and investment," the IMF said.  The fund added that inflation was worryingly low and deflation a real risk, prompting a raft of policies from the ECB to avoid the region tipping into it.  "Risks to growth are still tilted to the downside. With limited policy space in the near term, further negative shocks – either domestic or external – could undermine financial market sentiment, halt the recovery, and push the economy into lower inflation and even deflation," the IMF said. It painted a long road to full recovery. Growth was expected to accelerate only a little next year, to 1.5% from 1.1% in 2014 – a slight downgrade from April's prediction of 1.2% growth this year. That outlook compares with the IMF's forecast for the UK economy to grow 2.9% this year and for the US to expand 2%.  Inflation in the eurozone was forecast to remain below the ECB's target of around 2%. The IMF predicts inflation of 0.7% this year and 1.2% in 2015.  It recommended that policymakers focus on three areas to strengthen the recovery: supporting demand, repairing balance sheets and advancing structural reforms.  "Such policies would help mitigate risks to the recovery and reduce spillovers from low growth and low inflation to the rest of the world," it added.  It welcomed actions so far by the ECB and said it was reassuring the central bank had expressed willingness to do more if inflation remains too low. Such action should include asset purchases, known as quantitative easing, in the IMF's view.

"Buying sovereign assets, in proportion to ECB capital key, would reduce government bond yields, induce higher equity and corporate bond values, and ultimately raise demand and inflation expectations across the euro area," Monday's report said.... what misleading drivel….the euro zone is not weak…it is bankrupt insolvent skint…how exactly does a bank repair their balance sheet…apart from making profit…and how can they earn their way to profitability when in the real economy millions upon millions of eu citizens are jobless homeless or up to their eyeballs in debt….and most banks are stuffed up to the gills in toxic bonds from greece italy slovenia spain portugal ireland bulgaria …and most eu states have national debts fast approaching 100% of gdp if not greater than 100%..it is misleading because the article can't be referring to earning their way to better books of account so the article must be referring to other ways of improving balance sheets and that is is where it is misleading…..printing money….quantative easing…creating loans out of fresh air….are all just a dishonest kicking the can down the road...

A British exit from the EU would create an "enormous shock" to the bloc that would be "very difficult to manage", a senior official at the European Central Bank has said.

Benoit Coeure, a member of the ECB's six-member executive board, made the comment at a roundtable discussion in Athens.

He added: "We are in effort to bring capital markets together, we don't need that kind of shock."

Mr Coeure's comments will help mend UK-EU relations following David Cameron's failed attempt to block Brussels politician Jean-Claude Juncker from becoming head of the European Commission.

They follow the disclosure of comments by Mr Juncker on Tuesday night that he would not oppose attempts to repatriate powers from Brussels to Westminster.  In a leaked recording of a meeting with Brussels MEPs, Mr Juncker said that he does “not want the EU without Britain”.

He said: “I would like Britain to stay as an active constructive member of the European Union. If Britain puts forward a proposal it will be taken under consideration.

“I am not in principle saying that no kind of repatriation can take place. If Westminster wants to recover competences, OK. If the others agree, it shall be done be done.”

The Prime Minister warned last month that keeping Britain in the EU had “got harder” because of Mr Juncker. 

Among economists, Marcel Fratzscher is considered to be particularly creative. As head of the German Institute for Economic Research (DIW), Fratzscher publishes more than almost any other economist in the German-speaking world and even politicians come to him for expertise. Indeed, he has been tasked by Economics Minister Sigmar Gabriel -- who is also German vice chancellor and head of the center-left Social Democratic Party -- with heading up a working group to examine how investments in Germany can be boosted.  Fratzscher's report, to be released on Wednesday, will likely garner the economist even more high-level attention. The study shows how Europe might be able to mobilize the kind of investment it badly needs, despite empty state coffers and the shackles imposed by the debt and deficit limitations of the European Stability Pact.  "We need an impulse to trigger growth in the crisis countries and to prevent the return of recession in the euro zone," Fratzscher says. He believes the recent proposal from France and Italy, which have insisted that stability rules be adjusted to allow for more investment, have merit as long as the debt rules are not weakened.  The DIW proposal adheres to the long-held economic axiom that today's investments ensure future growth -- that money left unspent on new technology or facilities today will not still be available tomorrow. Since the beginning of the financial crisis, gross fixed capital formation -- a macroeconomic measure of investment -- has dropped by 14 percent in the European Union and by 15 percent in the common currency area, DIW researchers have determined.  The European Stability Mechanism (ESM) -- the euro-zone bailout fund -- works similarly. Indeed, Fratzscher's idea is basically a bailout fund for the real economy.   But it is likely to come paired with significantly higher risks and a greater number of defaults. Liquidity problems tend to sneak up on companies much more quickly than they do countries. Nevertheless, Fratzscher doesn't believe that the new fund will result in losses for the stakeholders. "I believe that such a fund would at least break even in the end," he says.  DIW also doesn't think that the fund would encounter difficulties finding enough investors to snap up its bonds. Taken together, some €300 billion is saved each year in the euro zone, representing some 2.5 percent of its economic output. "The financial resources are there for a significant increase in private investment," Fratzscher says. "We just have to mobilize it."

Global economic activity should strengthen in the second half of the year and accelerate in 2015, although momentum could be weaker than expected, Christine Lagarde, head of the International Monetary Fund, said on Sunday, hinting at a slight cut in the fund's growth forecasts.

Lagarde said central banks' accommodative policies may have only a limited impact on demand and that countries should boost growth by investing in infrastructure, education and health, provided their debt stays sustainable.

The IMF's update of its global economic outlook, expected later this month, will be "very slightly different" from the forecasts published in April, she said.

In April, the IMF had predicted that global output would grow by 3.6% in 2014 and 3.9% in 2015.

"Global activity is picking up but the momentum could be less strong than we had expected because potential growth is weaker and investment ... remains subdued," she told an economic conference in southern France.

Lagarde made a plea for more public investment, saying that the "investment deficit" in both the public and private sectors was dragging down growth in most countries.

"Despite the many responses to the crisis ... recovery is modest, laborious, fragile, and measures to boost demand, despite the goodwill of central banks, will find their limits," she said.

"We must therefore take steps to boost efforts to strengthen growth. This is the opportunity in a number of countries to relaunch investment, without threatening the viability of public finances."

Lagarde said several times in her speech that, although now could be the time for some countries to boost public investment, not all of them could afford to do so. The positive impact of public investment on growth could be strong enough to allow for some state projects without weighing on debt-to-GDP ratios.

After a first quarter that was more disappointing than expected, there was now a marked rebound in the US economy, she said. Growth should accelerate as long as the Federal Reserve's withdrawal from its easy monetary policy is orderly and there is a precise medium-term budget framework.

The eurozone is slowly coming out of recession and it is crucial that countries continue to carry out reforms, including completing the banking union, she said.

Lagarde added that the IMF did not expect a "brutal" slowdown in China.

"Looking at emerging Asian countries, and in particular China, we are reassured because we do not see a brutal slowdown but rather a slight slowing of a growth that has become ... more sustainable and that we see at 7-7.5% this year."

George Magnus, the distinguished former chief economist of UBS, has written an interesting piece for the FT today on China's property sector. He argues that the financial markets haven't recognised the scale of the problems in the sector.

While it's generally understood that prices falling after years of chronic oversupply, Magnus fears that the links between residential and commercial property and China's shadow banking sector could destabilise China's financial system.

Here's a flavour:  The Chinese property sector is in a recession. Market optimists insist it is going through an “adjustment” similar to previous property downturns.A more sober view, however, is that because of unprecedented overbuilding, and leverage nurtured by the eruption of shadow banking, this downturn is both more serious and systemic. China is probably in the first stage of a denouement of the property- and construction investment-led growth model of the past 15 years. Financial markets are having trouble pricing the implications.Property accounts for about 25% of capital investment, and roughly 13% of gross domestic product. Incorporating associated industries, such as steel, cement, and construction machinery and materials, would raise the investment share of GDP to about 16 per cent.If this leading edge of China’s growth model saw a fall in investment growth from 20 per cent to 10 per cent, economic growth would slide by roughly 2 per cent, taking into account secondary effects. The stream of downward revisions to economic growth is not over yet....

Thousands of school workers, firefighters and local government workers joined rallies, picket lines and the march to Trafalgar Square on Thursday to protest against real-terms pay cuts and falling living standards. Union leaders said this was the biggest round of industrial action for three years. The government has imposed a 1% pay cap, meaning some of the lowest paid workers have seen their income fall in real terms for more than four years