France: Futher Economic Weakness in Prospect

Consensus Forecasts

The French downturn likely intensified in the first three months of this year. With activity having contracted by 0.3% (q-o-q) in Q4 2012, observers are betting that the national accounts report for Q1 2013 could see another consecutive decline in GDP. Indeed, March’s composite PMI (measuring overall economic activity) fell from 43.1 in February to 41.9, its largest drop in four years. Our panel’s 2013 GDP outlook has been scaled back into negative territory as a result. Tax increases and rising joblessness continue to hit corporate and household demand, and this is creating problems for the public finances. Indeed, France’s budget deficit hit 4.8% of GDP in 2012, just overshooting its 4.5% target.

January’s 1.3% fall in manufacturing production helped to bring the y-o-y rate down from -3.4% to -4.7%. Manufacturing orders for the same month also fell, by 1.9% (m-o-m). This reversed some of December’s 2.1% rise as orders from abroad contracted by 3.4%. February did show a notable improvement in manufacturing production of +0.8% (m-o-m), though, boosted by a robust 3.6% increase in motor vehicle output. The expired deadline for trading in old cars did initially hurt automakers: retail commerce in autos fell by 1.6% (m-o-m) in January after December’s 2.3% increase, while the association of French car manufacturers reported a 14% monthly decline in auto sales in Q1. However, February proved to be a positive month for durables spending as it rebounded by 0.9% (m-o-m) after a 7.1% collapse in January (on the back of declining auto demand). Overall goods consumption fell by 0.2%, though, as consumers spent less on clothing and household goods. Consumption and production forecasts for 2013 have been downgraded.

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