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Monday, June 23, 2014 2:00 PM

French Private Sector Contracts Second Month; Eurozone Composite Growth Weakest in 6-Months

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The Markit Flash Eurozone PMI shows Eurozone growth slows to six-month low despite strengthening periphery.

Key Points

  • Flash Eurozone PMI Composite Output Index at 52.8 (53.5 in May). 6-month low.
  • Flash Eurozone Services PMI Activity Index at 52.8 (53.2 in May). 3-month low.
  • Flash Eurozone Manufacturing PMI at 51.9 (52.2 in May). 7-month low.
  • Flash Eurozone Manufacturing PMI Output Index at 52.8 (54.3 in May). 9-month low.

Eurozone economic growth slowed for a second month running in June, easing to the weakest since December, according to the flash reading of the Markit Eurozone PMI. Growth remained robust in Germany despite weakening slightly, and France‟s downturn deepened. Elsewhere across the region, however, growth was the strongest since August 2007. The headline index covering output of both manufacturing and services fell from 53.5 in May to 52.8, dropping further from April‟s 35-month high. Despite the slowdown, the average PMI reading for the second quarter as a whole was the highest since the second quarter of 2011. Output has also now risen for 12 consecutive months. Output rose at identical rates in manufacturing and services, but the rates of growth slowed in both cases to nine- and three-month lows respectively. In a sign that activity may reaccelerate, the survey's measure of new orders rose to its highest since May 2011, driven by the service sector. A slowing in growth of manufacturing new orders to the weakest since October pointed to ongoing sluggish production growth in coming months, while service sector companies report ed the largest inflow of new business for three years. The service sector also saw business expectations about the year ahead improve to the second-est seen over the past three years.
French Private Sector Contracts Second Month

The Markit Flash France PMI shows French Private Sector Contracts Again in June.
Key Points

  • Flash France Composite Output Index down to 48.0 (49.3 in May), 4-month low
  • Flash France Services Activity Index falls to 48.2 (49.1 in May), 4-month low
  • Flash France Manufacturing Output Index falls to 47.1 (50.3 in May ), 6-month low
  • Flash France Manufacturing PMI drops to 47.8 (49.6 in May), 6-month low


June’s flash PMI data painted another picture of subdued economic performance in France, with output down for a second successive month, orders falling slightly and the sharpest cut in staffing levels for four months. After accounting for seasonal factors, the Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, posted a reading of 48.0 in June. That was down from May’s 49.3 and a four-month low. The decline in output was broad-based, with both manufacturers and service providers registering reductions since May. Goods-producers saw output decline to the sharpest degree in half-a-year; services companies the greatest in four months. Weighing on total output was a marginal fall in new orders.

The continuation of soft trends in output and new orders weighed on staffing levels in June, with a net decline in private sector employment recorded for the eighth month in a row. Latest data marked the sharpest overall fall for four months, with manufacturers recording a relatively sharper fall in headcounts than service providers. Further signs of excess capacity in the private sector were provided by the latest backlogs of work data, which showed a marginal contraction for the second month in a row. On the price front, input price inflation accelerated in June to a five-month high. Manufacturing costs rose for the first time since January, while service sector input price inflation rose to a stronger degree.

In contrast, competitive pressures and soft underlying demand continued to weigh on the pricing power of firms in June. Average output charges were cut for a twenty-sixth month in a row, with service providers registering the more marked reduction (manufacturing output prices were lowered to a modest degree).
France GDP Analysis

France is back in recession, with rising costs and falling output prices as well. Thank the socialist policies of Francois Hollande for this result.

Government spending accounts for close to 57 percent of French GDP, a truly inane percentage.

IBTimes reports Francois Hollande: France Faces €50bn More Public Spending Cuts. Now? Of course not!
Hollande's spending cuts will amount to 4% of French GDP and will take place between 2015 and 2017. As a whole, public spending accounts for 57% of GDP, one of the highest rates in Europe.

The country's finance ministry has a budget deficit equivalent to 4.1% of GDP, well above the 3% level agreed by the European Union under the Maastricht Treaty.

French public debt is also in breach of Maastricht standards, which dictate it must not get above 60% of GDP. It is forecast to hit 95.1% in 2014. Just servicing the debt will cost €46.7bn (£39bn, $64bn) a year.
Periphery Will Not Carry Europe

While growth returns to the periphery, the periphery is not going to carry Europe.

Growth in Germany will turn negative says Saxo Bank chief economist Steen Jakobsen, and I agree. For details, please see Coming Major Slowdown in Germany - How to Play It.

Also see Steen's Wine Country Conference II presentation, touching the same subject.

Mike "Mish" Shedlock

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