France: Manufacturing Still Shaky But Showing Improvement

Consensus Forecasts

The second release of the Q1 national accounts confirmed the economy’s fall into recession. GDP contracted by 0.2% (q-o-q), the same rate of decline as in Q4 2012, dragged down by falling consumption, investment and exports. However, there are signs that GDP in Q2 may already be cautiously pulling itself out of its slump. Manufacturing orders rose by 0.3% (m-o-m) in April after March’s robust 1.0% showing, lifted by an unexpectedly robust 3.1% surge in export orders. Excluding volatile transport materials, orders rose by 1.2%. Also in April, manufacturing production registered a +2.6% (m-o-m) fillip, rebounding from March’s 0.8% fall. May did see payback, though, as output declined by 1.1% (m-o-m), while in y-o-y terms, manufacturing contracted by 0.8%. June’s PMI for the sector remained below the expansion threshold at 48.4, but this still represented a 16-month high as the pace of decline slowed noticeably for output and new orders. The services PMI for the same month showed a similar pattern, leaving the composite index (and proxy for GDP growth) at a 10-month high, though still in modest contractionary territory. The manufacturing consensus has improved a little this month although production is expected to continue contracting for the year as a whole.

The initial impact of tax hikes and prevailing pessimism over the economy may have lessened ever so slightly if a few consumer indicators are anything to go by. Retail trade excluding autos was flat in April following a -0.3% (m-o-m) showing in March, but auto sales soared by 3.3%. Going into May, goods’ consumption completely offset April’s 0.5% (m-o-m) fall by recording growth of the same amount, lifted by a 1.4% rebound in food and 0.4% rise in durables purchases.

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