France: Return to Recession

Consensus Forecasts

A first release of Q1 GDP appeared on May 15, after our survey deadline; it showed the downturn extending into 2013 by -0.4% (q-o-q) following a 0.3% decline in Q4 2012. Monthly industrial and consumption indicators had already been painting a weak picture of activity, though. Manufacturing dropped by 1.0% (m-o-m) in March after February’s 0.8% rebound. For the quarter as a whole, manufacturing fell by 0.9% (q-o-q). In y-o-y terms, the contraction was especially steep, averaging -4.2% in the three months to March. April’s manufacturing PMI rose to a four-month high of 44.4 but remains in negative territory for a 14th consecutive month. Output and new orders also declined, albeit at a slower pace. At -2.4%, our panel’s 2013 production forecast remains depressed. The external environment is offering little support to competitiveness-strapped industry, while the downturn in domestic demand is a major source of weakness. March did see a 1.0% (m-o-m) rebound in goods’ consumption after a 0.2% fall, but Q1 as a whole contracted by 0.4% (q-o-q), pulled down by a sharp decline in auto sales in January. Consumption forecasts are in the doldrums amid unemployment, austerity and pronounced fears about the future.

The government’s stability and convergence plan confirmed that, at 3.7% of GDP, the budget deficit will overshoot its 3% target this year. The plan aims to balance budgetary responsibility (via a commitment to implement structural reform) with making sure that the pace of deficit reduction does not endanger activity. However, France’s public finances watchdog indicated that the official scenario underpinning the fiscal programme may be too optimistic.

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