France Lags As Eurozone Recovery Accelerates
Eurozone manufacturing PMI readings suggest that the economic recovery is likely to continue unabated in 2014. The aggregate index for the euro area rose to 52.7 in December, indicating ongoing expansion in the manufacturing sector throughout the entire second half of 2013. New orders and production rose at the fastest pace in two-and-a-half years, underpinned by ongoing improvements in new export orders. Overall, the readings paint an overwhelmingly positive outlook for the eurozone, with growing output and new orders slowing the rate of job losses in Spain and Greece, and leading to job creation in Germany, Italy and Ireland, underpinning our expectations for euro area real GDP to grow by 1.0% in 2014.
However, France's PMI readings remain unremittingly poor, with December's reading of 47.0 placing it below that of Greece's at 49.6. Concerns over the economic outlook are weighing on new orders while new exports fell at the fastest pace since June. In response to weaker demand, domestic manufacturers continued to cut jobs. The growing underperformance of French exports suggests that the lack of competitiveness in the manufacturing sector remains a major impediment to economic growth, and the increasing strength of the euro is likely to further exacerbate this dynamic. The stark divergence between France and the rest of the euro area indicates that improving regional demand might not be sufficient to drive a recovery in French manufacturing unless the country first addresses its outstanding competitiveness issues. We remain below consensus on French economic activity in 2013 and 2014, forecasting real GDP expansion of 0.0% and 0.5% respectively, and expect French credit risks to rise this year ( see 'Bond Spreads To Come Under Pressure', 30 Dec 2013).
|France PMI Reading Weaker Than Greece's|
|Europe - Manufacturing Purchasing Managers Indices|