Demand weakness continues to be a dampener to France’s manufacturing sector, with employment conditions also starting to worsen at a much more rapid pace. HCOB notes that:
“France’s manufacturing sector continues to suffer with weak demand. High financing costs are hurting goods producers, as
is sustained destocking. There are currently no signs to suggest an improvement is near. Accordingly, our HCOB nowcast
model signals contraction of -0.7% in the manufacturing sector for the fourth quarter, with a drag especially coming from the
capital goods segment.
“Sluggish demand isn’t hitting output as hard — thanks to backlogs of work. New orders continue to decline significantly, so
companies are relying on their backlogs of work to support production. As a result, fewer raw materials are being purchased
and stored.
“The danger of inflation is still present. input prices stood out in November, with the index rising by around four points – to be
marginally above 50 – amid reports of higher material costs. Output prices were still reduced, with the decline exclusively
attributable to the intermediate goods segment. Overall, the increase in the input prices PMI could translate into a higher
output prices PMI, increasing the risk of greater inflation. Our HCOB nowcast model expects an increase in CPI of 0.2% on a
monthly basis in November.
“Overall, demand is expected to stay weak and financing conditions are to stay tight, so manufacturers expect no
amelioration any time soon. They see no improvement in the demand situation over the next twelve months, which is also
reflected in the employment data from the PMI survey. We can therefore expect further rises in unemployment in the coming
months, after official INSEE figures have showed the jobless rate rising to 7.4% in the third quarter this year.”