Central bank now expects economy to grow only 0.2 percent in the second quarter, reports Team IFM
Paris, June 17: France witnessed its manufacturing output in April nosing up slightly ahead of levels of the previous month, official data released earlier this week showed, while an independent survey said it would hit “near stagnation” in May, primarily due to falling orders.
Bank of France also released a survey report that showed its measures of sentiment in both manufacturing and services declining below their long term averages in May.
Based on its monthly survey, the central bank now expects the economy to grow only 0.2 percent in the second quarter over the January-March period.
According to data released by the National Institute for Statistics and Economic Research (Insee) – which collects information on the French economy – the country’s manufacturing output rebounded slightly by 0.3 percent in April over that witnessed a month ago.
Insee also revised the March reading upwards to reflect a contraction of 0.4 percent, as against a contraction of 0.7 percent previously estimated.
Data released last month by Eurostat, which compiles detailed statistics on the European Union and candidate countries, showed that while industrial production slowed in the four major euro zone economies in March compared to February, the drag was most marked in France with its factory and mines outputs dipping 0.7 percent.
This was higher than the declines in the other members of the “Big Four” – Germany by 0.2 percent, Spain 0.6 percent and Italy 0.5 percent.
Quarter-on-quarter production was also down because of a weak energy demand due to unusually warm weather conditions prevailing over the winter, according to Marco Valli, chief euro zone economist at Italian bank UniCredit.
While Insee data showed French factory output gaining traction in April, reports said the Bank of France too sees business sentiments falling.
Moreover, fresh data from independent economy tracker Markit also said new orders dropped for the first time in three months in May, dragging down manufacturing and resulting in a moderation in output growth and a fall in employment at a “sharper rate”.
“The disappointing data paints a picture of a sector struggling to generate any sort of traction in recovery,” said Jack Kennedy, senior economist at Markit.
APRIL HOPES
French industrial production was hesitant over the first months of the year after being held back by weak energy demand due to a relatively milder weather, but Insee said it rebounded somewhat unexpectedly in April, primarily due to an increase in manufacturing and power generation.
Overall industry production ascended by 0.3 percent in April after a revised 0.4 percent fall in March, Insee said. Manufacturing output, which also fell by a revised 0.4 percent in March, similarly clawed up by 0.3 percent in April, it said.
Alongside, manufacturing output improved by 0.5 percent in the three months to April from the previous three-month period, and progressed by 1.1 percent as compared to the year-ago period, the national statistics institute said.
However, output declined in the industry as a whole by 0.6 percent in the three months to April due to a slump in electricity, gas, steam and air-conditioning, it added.
April also saw output climbing in other manufacturing by 0.7 percent, but declining in the manufacture of food products and beverages by 0.7 percent; manufacture of transport equipment by 0.5 percent, as well as in the manufacture of electrical and electronic equipment and machine equipment by 0.4 percent.
Meanwhile, according to the Bank of France survey, business sentiments took a tumble in May as consumers curtailed spending and businesses pared down investments, holding back growth in the first quarter.
President Francois Hollande has tried to stoke the economy with promises of tax cuts for business and low income households, but the announcement has not had any tangible impact.
The central bank’s “sentiment indicator” for the manufacturing sector declined to 97 in May, as compared to the long-term average of 100; it was 98 in April. The sentiment indicator in services also fell from 94 in April to 93.
MAY DECLINES
According to Markit, business conditions in the French manufacturing sector deteriorated for the first time in three months during May, with its seasonally adjusted index or PMI, designed to measure the sectoral performance, declining to 49.6 from 51.2 in April.
Weighing on the PMI was a reduction in new orders at factories for the first time since February. Output growth eased to “near-stagnation” levels, while employment and stocks of purchases both declined at faster rates.
“Only a sharper deterioration in suppliers’ delivery times acted to cushion the level of the PMI in the latest survey period,” Markit said.
Lower new orders were attributed by panellists to lackluster demand conditions and restricted client budgets. Data suggested weak demand both domestically and from abroad; new export orders fell for the first time in five months, albeit marginally.
With new orders decreasing, manufacturers supported a marginal rise in output, the slowest in four months, by clearing backlogs. Although slight, it was the first fall in outstanding business for three months.
Alongside, employment in the manufacturing sector declined for the second consecutive month in May at the sharpest pace since February, although was moderate overall.
Purchasing activity by manufacturers also continued to decline, with the pace accelerating to the sharpest since January. Some panellists told Markit that input buying had been scaled back in response to lower new orders.
Correspondingly, stocks of purchases fell further in May. The rate of contraction in pre-production inventories was marked, having accelerated to the sharpest since October 2013.
May data pointed to a further lengthening of suppliers’ delivery times, with some panellists commenting on low stock levels at vendors’ units. Lead times deteriorated to the greatest extent in three years.
Input prices faced by French manufacturers decreased for the fourth month running in May. However, the latest fall was marginal and the weakest since February.
French manufacturers reduced their prices charged for finished products for the third month in succession. Although the sharpest since January, the rate of decline was moderate overall. Those panellists reporting a drop in selling prices generally attributed this to competitive pressures.
“Faltering new orders scuttled the French manufacturing sector in May, with the PMI sinking below the neutral 50 mark for the first time in three months,” said Markit economist Kennedy. “Efforts to address competitiveness were reflected in a further cut in factory gate prices during May.”