France: Activity indicators remain upbeat in September - ING

Preliminary PMI data for September showed upbeat levels of activity expansion in France, both in manufacturing and in services, points out Julien Manceaux, Senior Economist at ING.

Key Quotes

“INSEE also confirmed this morning that GDP grew by 0.5% QoQ for the third quarter in a row in 2Q17. As opposition to labour market reform was fading yesterday, we believe that this should lead to higher employment growth and stronger than expected GDP growth in 2017.

Preliminary PMI data for September showed this morning that French manufacturing activity continues to expand at its fastest pace in more than two years. The index increased from 55.8 to 56.0. This figure is a sign that the stronger than expected recovery in industrial production in 2Q17 (+1.2% QoQ after -0.2% QoQ in 1Q17) should continue in the second half of the year, pulled among others by the recovering building sector.”

“The picture, which last month looked less rosy, in the service sector is even more upbeat this time, with the PMI index rebounding from 54.9 to 57.1, recovering its level of the first semester. If sustained, it could translate into an acceleration in job creation in coming months. For the moment, employment growth – though improving – remains subdued and the number of unemployed in July has come back to the level of the summer of 2016. On that front, the second day of protests yesterday (the first occurred on September 12th) showed declining support for Mr Macron’s opposition: around 130k people marched throughout France, against 220k two weeks ago. Unions are not all against the text, contrary to what happened one year ago with Mr Hollande’s reform. All in all, we therefore think that the reform will be passed and will increase hiring intentions in the service sector.”

“All in all, the expanding activity in both manufacturing and services should continue to support growth in the third quarter. INSEE confirmed this morning that GDP grew by 0.5% QoQ for the third quarter in a row in 2Q17, with annual GDP growth reaching 1.8%, its highest level in six years. Given the continuing strength in soft indicators in 3Q17, growth could reach 0.4% QoQ this quarter, which would lead to a stronger than expected rebound in 2017. French growth – having slowed from 1.2% in 2015 to 1.1% in 2016 – could then rebound to 1.7% in 2017. Afterwards, if the new Government can take profit from the accelerating recovery to implement reforms, GDP growth could accelerate towards 1.8% in 2018, which would help its public deficit reduction strategy which is still under Brussels’ scrutiny as the European Commission signalled this week.”