A survey flagged a downturn in manufacturing and services as business activity has slowed
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The French economy is ending the second quarter with an unexpected heavy decline in services and manufacturing, signaling a likely contraction, data compiled by S&P Global showed on Friday.
Based on purchasing manager index (PMI) flash data from the Hamburg Commercial Bank (HCOB), the report suggested a 0.5% contraction from the previous quarter, as output levels in France fell for the first time since the start of 2023.
A worsening decline in manufacturing production was accompanied by a renewed reduction in activity across the services sector, data revealed. The overall level of output in France declined at the strongest pace since February 2021.
The flash composite PMI output index for France fell for the first time since January, dropping from 51.2 in May to 47.3 in June – below the critical 50 threshold that separates growth from contraction and hitting a 28-month low.
“Prior to the June reading, our nowcast model had signaled economic growth of 0% for the second quarter, with manufacturing contracting and services expanding,” said Norman Liebke, an economist at HCOB. However, figures for June fell short of expectations as “now not only the manufacturing sector but also the services economy is expected to contract, and economic growth turns negative overall along with it,” he added.
Liebke stated that although the latest figures do not yet represent a recession, “speculation that one will occur is likely to increase.” Deterioration in demand, in particular from abroad, was driving June’s slump in business activity further and faster, the report said.
The survey data signaled a continued downturn in factory production, extending the manufacturing output slump that started in the middle of 2022.
“Driving the French economy into contraction territory was the services sector, where activity levels declined for the first time since January,” economists said. According to survey respondents, inflation, challenging financial conditions such as difficulties securing loans, and business shutdowns were the main factors behind the slump in French business activity.
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