France: Composite PMI drops in August
September 3, 2020
The seasonally-adjusted IHS Markit Composite Purchasing Managers’ Index (PMI) dropped to 51.6 in August, down markedly from July’s 57.3. Although the index still remained above the 50-threshold that separates expansion from contraction in business conditions, the result indicates that the economic recovery lost traction midway through the third quarter.
August’s reading largely reflected a slowdown in activity in both the manufacturing and services sectors. Moreover, aggregate new order growth lost traction amid uncertainty over the duration of the Covid-19 health crisis and as international sales continued to decline. Consequently, firms lowered employment and cut staff levels at a faster pace compared to July. Lastly, although French firms were still optimistic about the outlook for the coming 12 months, confidence dropped to a three-month low in August due to linger uncertainty with regards to the pandemic.
Commenting on the reading, Eliot Kerr, economist at IHS Markit, noted:
“The latest PMI data came as a disappointment following the sharp rise in private sector activity seen during July, which had spurred hopes that the French economy could undergo a swift recovery towards precoronavirus levels of output. However, with activity growth easing considerably in the latest survey period, those hopes have been dashed and it is more likely that July was a temporary shock driven by a marked increase in the number of reopening businesses. Going forward, we can expect a steadier expansion, but even that comes with the risk of another sharp downturn if infection rates accelerate sufficiently for the government to impose another lockdown."
Author: Hanna Andersson, Economist