France manufacturing downturn remains steep

Markit Research

French manufacturers endured another bleak month in March as operating conditions continued to deteriorate at a substantial rate. The headline Purchasing Managers’ Index (PMI) – rose from February’s record low of 34.8, to 36.5 (marginally above the earlier flash estimate of 36.3), but remained far below the neutral 50 mark.

 

Manufacturing production continued to decline at a considerable rate in March. However, the latest fall was less severe than the series record signaled one month previously. A similar trend was observed for new orders, which contracted sharply, albeit at a slower pace than seen in February. Panelists reported that consumers and businesses alike were reluctant to commit to new spending amid the current adverse economic climate. Data suggested that weakness was broad-based across both the domestic and export markets.

 

The shortfall in new orders allowed greater resources to be dedicated to the clearance of existing workloads in March. Consequently, outstanding business declined for a ninth consecutive month. Firms frequently attempted to cut spare capacity through job shedding, and employment contracted at a rate that was only marginally weaker than the series record seen in January.

 

Latest data pointed to sharp falls in stocks of both inputs and finished goods during March. Moreover, the latest reductions were at or equaled survey records. A number of panelists cited attempts to improve cash flow as the principal factors leading to the declines.

 

Input prices fell for a fifth straight month in March. Moreover, the latest drop was the steepest in the series history. Respondents commented on lower prices paid for raw materials linked to the slump in global demand, while suppliers were often reported to have reduced their tariffs in response to strong competition.

 

Output charges also decreased substantially on the month, as firms’ pricing power was eroded by poor demand conditions. The latest drop in factory gate prices was only slightly less marked than February’s record.

 

Supplier delivery times continued to improve in March. Faster lead times were attributed by the survey panel to weak demand for inputs and reduced pressure on vendors’ stock levels. Indeed, purchasing activity by French manufacturers declined at a steep rate that was the third-sharpest since the inception of the survey.

 

Commenting on the Markit/CDAF France Manufacturing PMI final data, Jack Kennedy, economist at Markit, said: “Although output and new orders fell at slower rates in March, the latest PMI data still point to severe weakness in the French manufacturing sector as the slump in demand continues. Perhaps the one factor offering some encouragement is a series record fall in inventories of finished goods, as it suggests the overhang of unsold stock is diminishing. Once the destocking phase is complete, falls in production should ease.”

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