Fast Becoming The Eurozone's Biggest Challenge
France's growth outlook remains grim, with further stagnation remaining our core scenario. Over the long-term, the inability of France to restore economic growth could become one of the main challenges to the eurozone's survival. France's Manufacturing Purchasing Managers' Index (PMI) fell sharply below consensus in August, dropping to 46.5, against consensus expectations of 47.8, indicating an accelerating pace of contraction. Manufacturers indicated the steepest reduction in new orders for 16 months. While the Services PMI rose to 51.1 from 50.4 the previous month, service sector companies were the least optimistic for 15 months during August. Furthermore, job shedding across the private sector continued apace, supporting our forecast for unemployment to continue rising throughout 2014 and 2015, and falling no earlier than 2016.
We have long been below-consensus on French real GDP growth and recently revised down our forecast for 2014 to 0.3%, from 0.7% previously, to 0.7% in 2014, from 1.1%. External demand is suffering from a strong euro, weakening regional growth and a lack of domestic competitiveness, while domestically, rising unemployment and deteriorating confidence is weakening demand. We are also sceptical that the French government has the political willpower to enact the wide-ranging economic reform required to place France on the path towards improved competitiveness and recovery. Hence we retain our negative outlook on French economic activity for the foreseeable future.
|All Signs Point Towards Stagnation|
|France - Markit Purchasing Managers' Indices|