On Friday, new data released by S&P Global showed that the French economy has shown an unexpectedly heavy decline in services and manufacturing in the second quarter, indicating a likely economic contraction.
Analyzing the purchasing manager index (PMI) flash data from the Hamburg Commercial Bank (HCOB), the report indicated that there was a 0.5% contraction compared to the previous quarter, marking the first decline in economic output levels in France since the start of 2023.
The data revealed that an accelerating decline in manufacturing production was accompanied by a continuing reduction in services sector activity. It was the strongest pace of output reduction seen in France since February of 2021.
The flash composite PMI output index for France declined for the first time since the beginning of the year, falling from 51.2 in May to 47.3 in June, taking it below the threshold reading of 50 which separates expansion from contraction, and leading the index to a 28-month low.
Norman Liebke, an economist at HCOB said, “Prior to the June reading, our nowcast model had signaled economic growth of 0% for the second quarter, with manufacturing contracting and services expanding,” adding that the July figures failed to meet expectations since, “now not only the manufacturing sector but also the services economy is expected to contract, and economic growth turns negative overall along with it.”
Liebke added that even though the latest numbers are not yet representative of a recession, “speculation that one will occur is likely to increase.” The report also noted that June’s slump in business activity was being driven further and faster by a pronounced deterioration in demand from abroad.
The data also showed a continued decline in factory production, which continues the manufacturing slump which began in the middle of 2022.
The economists said, “Driving the French economy into contraction territory was the services sector, where activity levels declined for the first time since January.” Survey respondents also noted inflation, difficult financial conditions like acquiring loans, and shutdowns of businesses were the primary factors driving the decline in business activity in France.
