Latest survey data from Markit/CDAF highlighted a deterioration of overall business conditions in the French manufacturing sector during June – the first in 37 months. This was signaled by the headline Purchasing Managers’ Index (PMI) – a seasonally adjusted index designed to give a snapshot of operating conditions in the manufacturing economy – recording 49.2, confirming the earlier flash reading and down from 51.5 in May.
Underlying the poor performance of the sector during the latest survey period was a contraction of incoming new orders for the second time in the past three months. Furthermore, the rate of decline was the sharpest since July 2003, with weakness
centered on the domestic market. New export orders declined for a fourth straight month, but the pace of contraction was only marginal. Weaker-than-expected sales contributed to a survey-record increase in stocks of finished goods held by French manufacturers during June.
Input price inflation quickened in June with panelists commenting on higher prices paid for a range of raw materials, particularly those related to oil. In response, companies raised their own charges at the fastest pace in 17 months. French manufacturers reined in purchasing activity during June, with buying volumes declining for the first time in eight months. Nevertheless, stocks of inputs increased marginally, in part aided by fewer delays in the receipt of purchased items from suppliers.
Employment fell for a second successive month in June, albeit only slightly, as firms trimmed their staffing levels in line with reduced workloads.
Commenting on the Markit/CDAF France Manufacturing PMI data, Jack Kennedy, economist at Markit, said: “The Manufacturing PMI entering contraction territory in June points to an increased recession risk for the French economy in H2. Slumping domestic demand and a survey-record rise in finished goods inventories paint a gloomy outlook for production over the coming months. Meanwhile, price pressures continue to intensify on both the input and output price measures, indicating that stagflation is fast becoming reality.”
