France’s Deepening Economic Decline in Manufacturing and Renewed Reduction in Services

The French economy has flipped int a tailspin after four consecutive monthly expansions according to the latest PMI data for June. Headline HCOB Flash France Composite PMI Output Index slipped from 51.2 to 47.3 to signal the fastest rate of decline since February 2021. Service sector activity showed renewed weakness in June as it also fell into contractionary territory. With ongoing aggressive ECB rate hikes 2023 faces further downside across these metrics that still are not reflecting a fraction of the lagging impact of tightened monetary policy.

Flash June Manufacturing PMI readings from Germany, France, and the U.K. all showed a deepening contraction. France service sector activity hit a 28 month low, its manufacturing PMI a 37 month low.

French EDF Reactors

France PMI June 2023

  • HCOB Flash France Composite PMI Output Index at 47.3 (May: 51.2). 28-month low.
  • HCOB Flash France Services PMI Business Activity Index at 48.0 (May: 52.5). 28-month low.
  • HCOB Flash France Manufacturing PMI Output Index at 44.2 (May: 44.7). 2-month low.
  • HCOB Flash France Manufacturing PMI at 45.5 (May: 45.7). 37-month low

French output levels fell for the first time since the start of 2023 according to the latest HCOB flash PMI data, compiled by S&P Global. “A worsening decline in manufacturing production was accompanied by a renewed reduction in activity across the services economy. Subsequently, the overall level of output in France declined at the strongest pace since February.”

Driving June’s slump in activity was a further and faster deterioration in demand, particularly from abroad. Confidence in the 12- month outlook also waned and dropped to its weakest level since May 2020. Hiring continued in June, but the rate of job creation slowed. Meanwhile, rates of input cost and output price inflation eased since May to 27- and 22-month lows respectively. Notably in the manufacturing sector, input prices and selling charges both declined.

Commenting on the flash PMI data, Norman Liebke, Economist at Hamburg Commercial Bank, said:

“The HCOB Flash PMIs for June do not paint an encouraging picture for the French economy, as was the case in recent months. With a value of 47.3, the HCOB Composite PMI is the lowest it has been since the beginning of 2021. Moreover, the index fell considerably compared with the previous month, with a drop of around four points. The services sector is mainly responsible for this decline. The companies surveyed indicated a renewed drop in activity, citing inflation and challenging financial conditions as reasons that led to lower business activity.

“Service sector companies lamented declining new orders at home and abroad, alongside falling backlogs of work. Although business expectations for the coming twelve months remain above the 50 mark, the corresponding HCOB PMI has fallen by more than six points and may indicate that the services sector will come under further pressure in the coming months.

“Prior to the June reading, our nowcast model had signalled economic growth of 0% QoQ for the second quarter, with manufacturing contracting and services expanding. With the new June figures of the HCOB PMIs, the picture changes, now not only the manufacturing sector but also the services economy is expected to contract, and economic growth turns negative overall along with it. According to our model, this results in negative growth of -0.5% QoQ. Even though this alone does not yet represent a recession, speculation that one will occur is likely to increase.

“On the price front, fundamentally encouraging signals are being sent, and these are coming primarily from the manufacturing sector. After the HCOB PMI for input prices in May signalled a decline in costs for the first time since July 2020, the corresponding PMI for sales prices now follows in June. In the services sector, on the other hand, while we have yet to see any price declines, the pace of price increases continues to slow. Although it is encouraging that price momentum is declining, we fear that service inflation will initially decline due to statistical base effects, but will ultimately remain persistent, thus also affecting core inflation significantly.”

About the Report

Final June data are published on 3 July for manufacturing and 5 July for services and composite indicators. The HCOB France PMI (Purchasing Managers’ Index) is produced by S&P Global and is based on original survey data collected from a representative panel of around 750 companies based in the French manufacturing and service sectors. The flash estimate is based on around 85% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.

Hamburg Commercial Bank (HCOB) is a private commercial bank and specialist financier headquartered in Hamburg, Germany. The bank offers its clients a high level of structuring expertise in the financing of commercial real estate projects with a focus on Germany as well as neighboring European countries. It also has a strong market position in international shipping. The bank is one of the pioneers in European-wide project financing for renewable energies and is also involved in the expansion of digital and other areas of important infrastructure.

Source: S&P Global

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