France – Still slower than the Euro Area Momentum

After a constant improvement since March 2013 the French index of the PMI/Markit survey slowdowns in August. The index is still below the threshold of 50 at 48.5 after 48.9 in July. The average (48.7) is well above the Q2 average (46.1) and the Q1 average (43.8). The process is still improving but it does not show a faster momentum.
We can see this dynamics in both the manufacturing and the non-manufacturing sector. For the former the index is at 49.7 as in July. The average is above Q2 average (46.4) and Q1 average (43.6). For the non-manufacturing sector the index is at 48.2 in August after 48.7 in July. The average is at 48.5 to be compared to 46 in Q2 and 43.9 in Q1.
There is no jump on the upside but the perception is that the downside risk is now limited as it is also for the Euro Area. This is positive for GDP growth even if Q3 growth number will probably be below the Q2 number.
The first chart shows the strong improvement of the synthetic index since March and the consistency between the index and GDP quarterly change. Downside risk is lower now and the probability of a new recession is low.
On the second chart the New Orders to Inventories ratio is still close to 1. We cannot see the improvement seen for the Euro Area. Stronger orders (see chart 3) are balanced by higher inventories. This will not lead to a stronger momentum for industrial production.
Employment is still contracting. As in the Euro Area this will be seen for long. Companies need to have a strong and long-lasting demand to change their mind about employment. There are still slacks in the production process. They have to be reduced before positive jobs creation, probably at the beginning of next year.
The French economy is in a very uncomfortable situation. Downside risks are lower but a strong improvement cannot be seen in the numbers. France is still behind the curve of the Euro Area.

Chart 1 – PMI/Markit Synthetic Index and GDP Quarterly Change


Chart 2 – Industrial Production, New Orders and Inventories

France-en-2013-august-pmi-ordersChart 3 – New Orders in the Manufacturing Sector


Chart 4 – Employment and Employment Index in the PMI/Markit Survey


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