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Sunday, January 6, 2008

French Economy Outlook Entering 2008

Evidence of the growing slowdown in the Eurozone economies continues to show up across the board. German retail sales, for example, fell for the third consecutive month in December according to the Bloomberg purchasing managers retail sales index released at the end of December.The index came in at a seasonally adjusted value of 44, compared with 43.6 in November. A reading below 50 indicates contraction. Retail sales across the entire 13 nations euro bloc also declined in December.

And Yet France Resists!

However not all the news coming out of France in recent days has been negative. In the third quarter of 2007 French Gross Domestic Product (GDP) grew by 0.8% according to revised estimates from the French statistics office Insee published this week. One of the strong points in this data was the performance of domestic consumption, with household expenditure rising by 0.8% ( following +0.6% in the second quarter of 2007), and thus contributing +0.4 point to GDP growth. General government expenditure slowed from a 0.5% y-o-y rate in Q2 to 0.4% and contributed +0.1 point to Q3 GDP growth.

Total Gross Fixed Capital Formation (GFCF) grew at an annual 0.6% (+0.4% in the previous quarter). The GFCF of households grew by 0.6%. In total GFCF contributed +0.2 point to GDP growth. Exports growth increased (+1.5% after +0.7% in the previous quarter), whereas imports grew more slowly, by 1.0% (after 1.8% growth in Q2), so that net foreign trade contributed +0.1 point to GDP growth (after being a -0.3 points drag in Q2). Inventory changes did not contribute to GDP growth (after +0.1 point in the preceding quarter).

Euro zone purchasing managers surveys for the manufacturing sector also tend to confirm the idea that the economy of most member states has slowed is likely to have slowed in the fourth quarter despite what seem to be pockets of resistance in some countries.

The purchasing managers index for the euro zone manufacturing sector eased to a final 52.6 in December from 52.8 in November. The December figure was revised up slightly from the provisional reading of 52.5. The manufacturing PMI for the whole zone has managed to remain above the October low of 51.5, but the December reading is still the second weakest figure since Aug 2005.

As suggested above, country level PMI surveys are giving the impression that national growth disparities within the euro area may be widening. France, for example, continues to resist the general downward trend in manufacturing with the French manufacturing PMI staging a small rally and climbing to 53.8 in December from 52.5 in November.

Nonetheless Q4 may not be so positive as the third quarter was. As already noted, retail sales dropped in France in Novermber for the third month in succession according to the PMI, with the December index oming in at 49.1,

However consumer confidence in France unexpectedly dropped to a 19-month low in December in France. Consumer sentiment fell to minus 29 from minus 28 in November,according to Insee, the Paris-based national statistics office. The December reading is the lowest since May 2006.

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