- Prior 46.0
- Manufacturing PMI 43.6 vs 46.0 expected
- Prior 46.0
- Composite PMI 43.5 vs 46.0 expected
- Prior 46.0
Things are just getting worse for the euro area economy as the French services sector plunges deeper into contraction territory towards the end of Q3. Both the headline and composite readings are at their respective 34-month lows while the manufacturing reading is a 40-month low. Ouch. The euro has fallen on the data with EUR/USD down 0.3% to 1.0620 levels now, from around 1.0665 earlier.
HCOB notes that:
“The French economy is steering towards some choppy waters. Business activity has fallen sharply in both the service and manufacturing sectors in September, mainly due to a slump in demand for French products and services. As a result, French companies are drawing down their order backlogs.
“We think economic growth will be lower in 2024 than previously expected. Although companies in the service sector remain optimistic, they were far more optimistic a month ago. In September, manufacturers are more pessimistic than at any time since the pandemic began as growth expectations fell to their lowest since May 2020. In line with this, the French National Bank has recently revised down its forecast for economic growth in 2024.
“Economic growth for this quarter steers in the direction of stagnation, with our nowcast model pointing to growth of just 0.2%. It is important to note however that this will be almost entirely driven by the public service sector. The private service sector is expected to fall, according to the nowcast, in line with the signal seen in the PMI survey.
“The employment situation remains tricky. Recently, France has achieved its lowest unemployment rate since 2008. However, manufacturers have reported job cuts for four successive months, while services companies are still hiring more workers. That said, September’s sharp decline in business activity in the services sector suggests that employment should fall in the future. Subsequently, unemployment should rise in the coming months, reversing the overall downward trend in unemployment for now.
“Inflation is still lurking, and the latest data shows rising input prices and output charges. This remains entirely services-driven however as prices continue to fall in the manufacturing sector. The French government had decided to impose price caps on certain food products beginning in July, but there is not much sign of an impact, particularly in the PMIs. Finance minister Le Maire announced further food price cuts, so it could well be that prices drop in the months after. We therefore expect overall inflation to have risen further in September to a rate of 5.5% before falling to a lower level.”
