Central bank keeps sentiment indicator for manufacturing sector unchanged below long-term average, reports Team IFM
Paris, July 14, 2014: The slowdown continues to chase France, with official data showing its trade deficit widening in May compared to the preceding month as imports rebounded, confirming findings of an independent survey that said the world’s fifth largest economy hovered “near stagnation” in the month under review, primarily due to falling orders.
In a further indication of the continuing sluggishness that has had an impact on its payroll numbers, the French central bank said the economy crawled ahead by only 0.2 percent between April and June after dragging in the first quarter of the year.
This is in line with an earlier assessment of the Bank of France, which said last month it expects the economy to grow only 0.2 percent in the second quarter over the January-March period.
The assessment was based on its monthly survey report for May that showed its measures of business sentiment in both manufacturing and services sectors declining below their long term averages during the month.
On Tuesday, the central bank said its “sentiment indicator” for the manufacturing sector was unchanged at 97, the same as in May, as compared to the long-term average of 100.
While it was 98 in April, analysts had predicted a worse scenario of 96 for May. The indicator for the services sector was similarly unaltered at 93.
Data released last month by Eurostat, which compiles detailed statistics on the European Union and candidate countries, showed that while industrial production in the four major Euro zone economies slowed in March compared to February, the drag was most marked in France with output at its factories and mines 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.
Meanwhile, according to data released by the customs office on Tuesday, French trade deficit swelled to 4.9 billion euro, or about $6.62 billion, in May from 4.1 billion euro a month earlier as imports spiked 2.2 percent month-in-month, or by 873 million euro.
As against this, exports went up only a minuscule 0.3 percent.
According to the customs office, imports rebounded in May following an upswing in purchase of foreign refined oil products and works of art.
On the brighter side, the cumulative year-to-date deficit is the narrowest since 2009 despite the skewered trade balance in May, the customs office said.
President Francois Hollande’s government has tried to stoke the economy with promises of tax cuts for business and low income households, but the announcement has had not any tangible impact. It has forecast a growth of 1.0 percent this year, upon which it has built its budget.
Against this, the second quarter growth estimate of the Bank of France was unchanged from a previous projection, which had pegged growth during the period under review at 0.2 percent.
In a report released last week, accountancy major PwC said rigid labour laws in France and sluggish headway on structural reforms meant that the country would lose its position as the second largest economy in the Euro zone to the UK by 2020.
John Hawksworth, PwC’s chief economist, told the Telegraph newspaper of the UK that France was “performing reasonably well” until a few years ago, and had not been fettered by a deep recession like the UK and initially recovered better.
“But it’s the last couple of years where the UK has achieved a take-off, whereas France has been left on the runway,” the Telegraph quoted Hawksworth as saying.
According to the paper, the PwC economist also felt the French economy lacked “dynamism” in recent years.
Meanwhile, according to independent economy tracker 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.
Moreover, its latest data – for June – pointed to the fastest deterioration so far this year. This was highlighted by the PMI falling to 48.2 in June from 49.6 during May.
While the index was up from the earlier flash PMI figure of 47.8 in June, the headline index has now registered below the neutral 50.0 value for two months running and the latest reading was the lowest since December 2013.
“A renewed decline in manufacturing production volumes was the main negative influence on the headline PMI in June,” Markit said. “Output levels dropped for the first time in five months and at the fastest pace since December 2013.”
Moreover, new business levels decreased for the second month running in June and, in line with the trend for production, the latest reduction in new work was the steepest so far in 2014. Anecdotal evidence cited weaker demand from both domestic and export clients in June.
The latest survey also signalled a second consecutive monthly fall in new business received from abroad, with the rate of decline the joint-fastest since June 2013.
Weaker levels of client spending resulted in a lack of pressure on operating capacity during June, as highlighted by backlogs of work decreasing for the second month in a row. “Moreover, the latest fall in outstanding business was the fastest since December 2013,” Markit said.
Lower workloads resulted in further job shedding across the manufacturing sector in June. Staffing levels were cut for the third month running and at the steepest pace since December 2013.
Anecdotal evidence from survey respondents suggested that worries about the outlook for client spending had also contributed to decreased workforce numbers.
Alongside, manufacturers in France reduced their volumes of input buying in June, and the rate of decline was the fastest so far in 2014. Stocks of purchases were depleted, albeit at the slowest pace since August 2013.
“France’s manufacturing sector is back in reverse gear and weakness looks set to persist through the summer,” said Tim Moore, senior economist at Markit.
“Squeezed operating margins and a return to falling output volumes contributed to the steepest pace of manufacturing job shedding since the end of 2013,” Moore added.