France: Q1 Recession as Downbeat Sentiment Deepens

Consensus Forecasts

France entered its second recession in four years in Q1 2013. GDP fell by 0.2% (q-o-q), the same rate of decline as in Q4 2012, while the y-o-y rate contracted by 0.4% after a 0.3% fall in the previous quarter. Despite higher energy spending (due to the extended cold snap), household consumption dropped by 0.1% (q-o-q) following two straight quarters of zero growth. The weakness in consumer activity reflects rising joblessness and a lack of confidence in the direction of activity. The Q1 estimate for unemployment stood at 10.4%, up from the ILO’s 10.1% figure for Q4 2012. Meanwhile, the Labour Ministry said that joblessness in France and overseas territories hit a new high of 11% in April, and it is likely that unemployment has not yet peaked. Our panel’s forecasts for consumption and the jobless rate have worsened this month.

April PMIs for manufacturing and services highlighted the solid pace in job-shedding in both sectors. On a more positive note, the decline in manufacturing output slowed from -2.7% (q-o-q) in Q4 2012 to -0.5% in Q1 2013. Production is rebounding noticeably going into Q2, surging by 2.6% (m-o-m) in April, lifted by a 4.6% monthly gain in vehicles and 7% surge in transport equipment. Transport also contributed to March’s 0.8% (m-o-m) jump in manufacturing orders. A pickup in investment and intermediate goods orders adds some hope to news of Q1 business investment falling in both q-o-q and y-o-y terms for a fifth straight quarter. Still, in order to encourage a full-blooded turnaround in corporate spending, the IMF has joined the European Commission and Medef in urging French policymakers to continue targeting structural challenges like its “declining rate of productivity growth, low profit margins, and a deteriorating export performance.”

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