France: Private sector activity falls at fastest pace in five months in October
October 23, 2020
The seasonally-adjusted IHS Markit Flash Composite Purchasing Managers’ Index (PMI) fell to 47.3 in October, from 48.5 in September, marking the worst reading in five months. As such, the index slipped further below the 50-threshold that separates contraction from expansion in business conditions, pointing to deteriorating economic backdrop.
October’s downturn came against the backdrop of the rapidly increasing number of new Covid-19 cases and was chiefly driven by declining output in the services sector, due to a fall in new orders. Meanwhile, activity in the manufacturing sector expanded for the fifth month straight, although the pace of expansion cooled from the previous month.
With regards to employment, French firms continued to cut staff levels in October amid softer demand dynamics, albeit at a slower rate compared to the previous month. On the price front, although input cost rose due to input shortages and higher hygiene products prices, inflation slowed to a four-month low. Meanwhile, output charges fell in October as firms continued to cut prices, albeit at a softer pace compared to the previous month. Lastly, businesses turned less optimistic regarding the 12-month outlook, logging the weakest sentiment since May.
Commenting on the outlook for French business activity, Eliot Kerr, economist at IHS Markit, noted:
“Private sector firms must now hope that the latest set of restrictions are effective in tempering the spread of the virus. At present, firms’ clients are unwilling to commit to large-scale projects while the trajectory of infection rates is steepening. However, with the European winter fast approaching, the prospect of a sharp drop in new positive cases and a full reopening of the economy seems unlikely. The festive period, usually so important for wide range of business, is set to be a difficult one”.
Author: Hanna Andersson, Economist