What shape is the French economy in? Economic data suggests the second largest economy in the eurozone after Germany’s may be another ’sick man’. According to the French statistics office INSEE, the business climate in the country recently deteriorated, notably in the manufacturing industry, writes Nathalie Benatia.
There are worrying parallels with economic weakness in Germany. France’s business climate index. lost one point, falling to 97 and how hovering below its long-term average of 100. The index for manufacturing industry did worse: it dropped by seven points to 92, marking the largest monthly fall since November 2008 (with the exception of the Covid-19 pandemic).
October’s index matched a level not seen since November 2020. Views on past production, personal production expectations and order books turned gloomier. The timid improvement in services and the relative stability in construction and retail were offset by the sharp deterioration in industry. Within manufacturing, transport equipment suffered the most.
A survey of purchasing managers paints a different picture, but it is not rosier. It recorded a modest fall in manufacturing from 44.6 to 44.5 and a steeper fall in services from 49.6 to 48.3. The two indices stand below the boom-or-bust threshold of 50, sending the overall composite index to 47.3 in October. This marks a nine-month low.
INSEE does not comment on monthly statistics. The PMI press release said, “the French industrial sector remains mired in a deep crisis”. In September, the German Ifo institute concluded that “the German economy is coming under ever-increasing pressure”.
The weak data and poor prospects for the eurozone’s largest economies are striking. So is the sudden shift to a very dovish tone at the European Central Bank (ECB).
One could wonder whether the ECB has shifted its focus from (fighting) inflation to (promoting) growth. Several policymakers have recently pointed to the risk of inflation undershooting the ECB’s 2% core inflation target as a reason for accelerating the pace of interest rate cuts. Weak economic growth generally weighs on inflation.
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