- Prior 45.7
- Manufacturing PMI 43.2 vs 42.5 expected
- Prior 42.1
- Composite PMI 44.2 vs 45.2 expected
- Prior 44.8
That’s a 4-month low in France’s services sector activity and it reaffirms a continued contraction in the economy to start the new year. Even though the manufacturing print is the highest in four months, manufacturing output actually fell on the month down to a 44-month low. Once again, softer demand conditions is the main culprit for the drag in activity. Adding to the conundrum for the ECB is that price pressures are seen intensifying with higher wages being one of the sources. HCOB notes that:
“The French economy is kicking off 2024 on a slow note. The latest HCOB Flash PMIs show a depressing picture overall.
According to our nowcast model, which also takes the latest HCOB PMI figures into account, Europe’s second-largest
economy is likely to stagnate in the first quarter of 2024, but risks are to the downside.
“The French service sector could become a beacon of hope. Even though activity fell for an eighth month, new business
overall and from abroad fell at a slower pace. Employment even increased for another month, although only marginally. Of
course, the situation remains poor, but these could be the first signs of an imminent improvement in the service sector.
“Manufacturing is taking a hard hit. Production is shrinking at the fastest pace since the start of the pandemic in 2020, the
PMI for new business is stuck at a level below the 40 mark and employment continues to fall sharply. Weak demand is
putting a lot of pressure on the manufacturing sector, anecdotal evidence shows.
“Most probably, the ECB won’t start cutting rates in the next few months amid surging wages. PMIs for input and output
prices remain clearly above the 50 mark in France, hinting at stubborn euro area consumer price inflation. According to
anecdotal evidence, input prices rose due to higher wages, confirming the concerns that ECB members have over cutting
interest rates early. Companies have largely been able to pass on their costs to customers, therefore explaining the increase
in selling prices. The rising prices are mainly coming from the service sector, which is labour-intensive and therefore strongly
affected by wage increases.”