- Prior 45.7
- Composite PMI 44.6 vs 44.2 prelim
- Prior 44.8
That’s a slight improvement to the initial estimates but the French economy did fare marginally worse than it did in December to start the new year. Of note, the services sector contracted once again and that streak is now at eight consecutive months. Subdued demand conditions continue to weigh mostly while price pressures remain sharp with inflation still running above the series’ long-run average. That isn’t exactly what the ECB is hoping for. HCOB notes that:
“The French service sector is continuing to perform poorly. Business activity declined for the eighth straight month, new
business overall and from abroad are still on the decline and employment is hovering close to the stagnation threshold. In
addition, price pressures intensified, heating up inflation and thereby feeding the narrative of stagflation. However, optimism
for future business picked up again in January, showing a little bit of hope for the coming months.
“Wage developments also have the potential to delay ECB rate cuts. In January, input prices in the service sector increased
again, and even sped up a bit. Output prices increased at an accelerated pace as well. Service inflation is the main
contributing factor to elevated official consumer price inflation rates, so the latest PMI results suggest that the 2% inflation
target remains out of reach in the short term, which poses a severe risk for the ECB rate cuts that are expected in the
coming months.
“While the current situation looks dire, panelists showed some optimism with respect to future service sector output, which
contrasts with the view of manufacturers. According to anecdotal evidence, optimism stems from hopes of interest rate cuts
this year. However, the best we can say for the first quarter is that we expect a stagnation of the French economy, with a bit
of upside potential.”