French worries rise as PMI slumps
Simon Ward
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Previous posts discussed French post-election narrow money weakness and a deterioration in the country’s TARGET2 balance, suggesting an outflow of capital. French real M1 deposits contracted in the six months to November, contrasting with a surge in Germany and moderate growth in the rest of the Eurozone – see first chart. This warned that the French economy would underperform not only Germany but also a stabilising periphery.
Today’s “flash” purchasing managers’ surveys provide further support for this theme. The second chart, extracted from the press release of data provider Markit Economics, shows composite output indices for Germany, France and the rest of the Eurozone. The suggestion is that GDP is still falling in France even as it recovers in Germany and stabilises in the rest of the region. (The output index reading for the latter remains below 50 but is above a level historically associated with GDP contraction. No further country breakdown is available at this stage.)
December monetary statistics released on Monday will be important for assessing whether France is simply lagging a regional recovery or is on a divergent path of weakness, implying mounting pressure on President Hollande and likely further financial strains.
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