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Tuesday, April 02, 2013 12:50 PM

Sharp Deterioration in French Manufacturing; Hollande Orders Employers to Pay 75% Tax; Top Executives Join France Exodus

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As expected, economic news in France continues to worsen. The Markit France Manufacturing PMI shows final data French manufacturing sector operating conditions continue to deteriorate at a marked pace.

Key points:

PMI remains indicative of sharp downturn despite rising to three-month high
Output, new orders and employment fall further
Prices charged cut at fastest rate since November 2009


Operating conditions in the French manufacturing sector continued to worsen in March. Although the headline Purchasing Managers’ Index ® inched up to a three-month high of 44.0, from 43.9 in February, it continued to signal a marked rate of deterioration.

The level of incoming new orders placed with manufacturers in France decreased further during March, extending the current period of contraction to 21 months. Moreover, the pace of decline accelerated slightly since February.

Reduced workloads prompted French manufacturers to cut staffing levels further in March. The rate of job shedding was solid, albeit the slowest in three months.

Prices charged by French manufacturers for finished goods fell for the third month running during March. Furthermore, the rate of decline accelerated to the sharpest since November 2009. A number of survey respondents commented that strong competitive pressures had weighed on their pricing power.


Jack Kennedy, Senior Economist at Markit said: “A very slight improvement in the headline PMI figure does little to disguise an ongoing sharp deterioration in French manufacturing sector operating conditions during March. Increasingly aggressive output price discounting failed to prevent new orders dropping steeply remained deficient. Further marked falls in employment, purchasing and stocks also bear witness to a beleaguered industry struggling in the face of a darkening economic climate in France.”
Manufacturing vs. Production

click on chart for sharper image

The manufacturing PMI leads production and by implication GDP.

So guess where French GDP and the French budget deficit is headed. A trio of articles from the Financial Times will fill in a few of the expected pieces.

France Misses 2012 Deficit Target

As expected in this corner France Misses 2012 Deficit Target and it will miss its 2013 target as well.
Official figures showed the nominal deficit last year was 4.8 per cent of gross domestic product, overshooting the government’s target of 4.5 per cent. The 2011 deficit was also revised slightly upwards to 5.3 per cent.

The government has already acknowledged it will overshoot this year’s target deficit of 3 per cent previously agreed with the European Commission. With the figure now forecast to hit 3.7 per cent, France is seeking a year’s delay from the commission for reaching the target, the level at which growth in the public debt should stabilise.

The figures from Insee, the national statistics agency, showed the public debt, including France’s commitments to the eurozone’s rescue funds, rose to a record 90.2 per cent of GDP in 2012, slightly higher than target and up from 85.8 per cent in 2011.

France has not had a balanced budget since 1974 and is under strong pressure to cut its big public spending bill, which amounts to more than 56 per cent of GDP, the second largest in the EU.
French Unemployment Hits 16-Year High

Also as expected in this corner French Unemployment Hits 16-Year High
French unemployment nudged a record level in February as the jobless total rose for the 22nd month in succession to a 16-year high, adding to the acute political pressure on President François Hollande as he battles a stalled economy.

The number of people out of work actively seeking employment rose by 18,400 over the month to 3.18m, just shy of the record level of 3.19m reached in 1997, labour ministry figures showed.
Hollande Orders Employers to Pay 75% Tax

In the not expected but hardly surprising category, Hollande Orders Employers to Pay 75% Tax

In March, the French constitutional court disallowed Hollande's controversial top tax rate of 75% on individuals.

Proving that you cannot keep a dedicated socialist down, Hollande switched responsibility for paying the tax to employers. It was after all a "campaign promise". Why is it that idiotic pledges are the ones most likely to be met?

Supposedly the tax hike will last only two years.

Is it any wonder Top executives flee France for London, Belgium, and Switzerland?

Mike "Mish" Shedlock

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