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Thursday, October 23, 2014 2:17 PM

French Private Sector Output Falls at Sharpest Rate in Eight Months; Tale of Two Europes

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Looking for growth in Europe? You won't find it in France, but you can still find it in Germany (for now).

The Markit Flash France PMI shows French private sector output falls at sharpest rate in eight months.

Key Points

  • Flash France Composite Output Index falls to 48.0 (48.4 in September), 8-month low
  • Flash France Services Activity Index falls to 48.1 (48.4 in September ), 8-month low
  • Flash France Manufacturing Output Index falls to 47.6 (48.4 in September ), 2-month low
  • Flash France Manufacturing PMI falls to 47.3 (48.8 in September), 2-month low


The latest flash PMI data signalled a deepening downturn in France’s private sector economy during October. The seasonally adjust ed Markit Flash France Composite Output Index , based on around 85% of normal monthly survey replies, slipped to 48.0, from 48.4 in September. That was its lowest reading since February, albeit indicative of a moderate rate of contraction overall. Faster declines in output were recorded in both the services and manufacturing sectors during October.

Employment in the French private sector fell further in October, extending the current period of contraction to one year. Furthermore, the rate of decline quickened to the sharpest since April 2013. Similarly solid rates of job shedding were registered across the services and manufacturing sectors. Staffing levels were cut in line with reduced workloads.

Outstanding business at French private sector firms fell for the sixth month running, and at the fastest pace since May 2013. Lower backlogs were signalled by service providers and manufacturers alike.

Divergent trends continued to be observed for input and output prices during the latest survey period. Input costs rose for a seventeenth consecutive month, albeit at a moderate pace. Increases were signalled in both the services and manufacturing sectors. Conversely, output prices decreased further in October. The rate of decline in charges was considerable, having accelerated to the sharpest in five years. Firms in both sectors cut their selling prices, citing intense competitive pressures and tough negotiations with clients.


Jack Kennedy , Senior Economist at Markit, which compiles the Flash France PMI ® survey, said: “The French economy remained stuck in reverse gear in October , as crumbling demand dragged activity lower. New orders fell at the sharpest p ace in 16 months, leading firms to make deeper cuts to output and employment. Companies scrabbled to attract new business by slashing their output prices to the greatest extent in five years, despite a further rise in input costs, underlining the extent of the pressures facing businesses at present. 

The Markit Flash Germany PMI shows Output growth maintained as manufacturing strengthens.

Key Points

  • Flash Germany Composite Output Index at 54.3 (54.1 in September), 3-month high.
  • Flash Germany Services Activity Index at 54.8 (55.7 in September), 4-month low.
  • Flash Germany Manufacturing PMI at 51.8 (49.9 in September), 3-month high.
  • Flash Germany Manufacturing Output 53.3 (51.0 in September), 3-month high.

The seasonally adjusted Markit Flash Germany Composite Output Index rose marginally from September’s 54.1 to 54.3 in October, thereby extending the current sequence of private sector output growth to a year-and-a-half.

Input prices continued to increase during October, largely driven by higher staff costs in the service sector. Manufacturers, on the other hand, reported a further decline in costs. That said, the overall rate of cost inflation picked up slightly since September. Despite higher input prices, charges fell for the first time since June last year, thereby squeezing on companies’ profit margins. Anecdotal evidence suggested that firms lowered their output prices amid increased competitive pressures.

Service providers reported a sharp drop in confidence in October, with the level of positive sentiment the weakest in nearly two years. Survey participants commented on economic risks in Southern Europe, slower new order growth and a subdued business climate.


Oliver Kolodseike, economist at Markit and author of the Flash Germany PMI®, said: “T he latest flash PMI results suggest that Germany’s private sector economy expanded at the start of the fourth quarter. Activity increased at a slightly stronger rate than in September and encouraged companies to take on additional workers. However, margins were under pressure, as companies reduced their charges despite rising input costs.

Our panellists reported that they reduced their charges in a response to increased competitive pressures. “While the service sector remained the driving force in terms of output growth , manufacturing recovered some of the ground it had lost last month, with the headline PMI edging back into expansion territory and signalling an improvement in operating conditions in the sector. “However, there are still some uncertainties about the near-term. New orders increased at the slowest pace in over a year and service providers reported a sharp drop in sentiment, suggesting that output growth may come under pressure in coming months.”
Tale of Two Europes

For now, it's still a tale of two Europes. Germany (and some smaller Northern European countries) vs. everyone else. Such divergences will not last forever. The slowdown in China and the ridiculous sanctions on Russia will both take their toll on all of Europe.

The Sick Man of Europe is Europe; Blame the Socialists, Progressives, Greens, and the Euro Itself.

Mike "Mish" Shedlock

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