Worrying signs for the economy of France as the manufacturing downturn bites

Today has opened with some troubling news for the economy of France and the area driving this will not be a surprise. The official confidence survey series has produced this headline.

In October 2019, the business climate has deteriorated in the manufacturing industry

This is a sign that the problems we see in so much of the world have been hitting France and there has been a particularly rapid deterioration this month.

According to the business managers surveyed in October 2019, the business climate in industry has deteriorated compared to September. The composite indicator has lost three points to 99, moving just below its long term average (100).

If we look back at this series we see that it peaked at 113,5 back in February 2018 and is now at 99.4 so quite a decline which has now moved it below its long-term average, This matters as it is a long-running series and of course 100 for manufacturing means relative decline.

If we look for specific areas of weakness we find these.

In the manufacture of equipment goods, the business climate has lost three points and moved below its long-term average (97). In the in the electrical equipment and in the machinery and equipment branches, the balances of opinion have get worse, more sharply than in September, to stand significantly below their average.

And also these.

The business climate has deteriorated in almost all subsectors, particularly in chemicals where the deterioration is the most significant. In this subsector, as in basic metals, the business climate indicator stands largely below its long-term average.

Maybe a little surprisingly this area seems to be hanging in there.

In the manufacture of transport equipment, the business climate indicator has lost two points in October, after a stability in the previous month, and stands slightly below its long-term average.

That is in spite of this.

The climate indicator has decreased again in the automotive industry and has practically returned to the low point of July. The balance of opinion on general production prospects contributes the most sharply to this deterioration.

They do not say it but the motor industry has fallen to 91.

On the other side of the coin the computing and optical sector seems to be improving.

If we bring it all together then there are concerns for other economic measures from this.

Considering employment, the balances opinion on their past variation and perspectives have declined slightly. Both indicators stand however largely above their long-term average.

That does not seem set to last and for what it is worth ( it is volatile) there is also this.

The turning-point indicator has moved down into the area indicating an uncertain economic outlook.

For context the official output series has been telling us this.

In August 2019, output diminished in the manufacturing industry (−0.8%, after +0.4%)……..Over the last three months, output declined in manufacturing industry (−1.2%)……Manufacturing output of the last three months got worse compared to the same three months of 2018 (−0.8%),

That was something of a troika as all three ways of measuring the situation showed falls.

Is it spreading to other sectors?

So far the services sector is not only ignoring this it is doing rather well.

According to business managers surveyed in October 2019, the business climate in services is stable. At 106, it stands well above its long-term average (100).

The only real flicker is here.

More business managers than in July have reported demand difficulties only.

Construction is apparently continuing the boom which began in 2015.

According to the business managers in the building construction industry surveyed in October 2019, the business climate is stable. The composite indicator stands at 112, its highest level since May 2008, largely above its long-term average (100).

This brings me to the official forecast for economic growth from the beginning of the month.

However, the macroeconomic scenario for France remains virtually unchanged since the June 2019 Conjoncture in France report (with projected growth of +0.3% each quarter through to the end of the year, and +1.3% as an annual average in 2019.

The problems you see are all the fault of whatever is French for Johnny Foreigner.

The international economic environment is deteriorating, due to a combination of several factors: protectionist pressures, uncertainties surrounding Brexit, doubts about the orientation of economic policies in certain countries, etc. Growth forecasts for most of France’s economic partners are therefore revised downwards.

Indeed their statisticians seem to abandon European unity and indulge in some trolling.

These international shocks have had a more negative impact on economic activity in Germany than in France. Indeed, growth in Germany stagnated in the spring (–0.1% after +0.4%), with the weakening of international trade and the slowdown in corporate investment hitting industry much harder than services.

If only German had a word for that. Meanwhile this bit just seems cruel.

Italian economic growth has remained almost non-existent for more than a year (0.0% in Q2 after +0.1% in Q1).

Monetary Policy

Here we go.

the European Central Bank (ECB) extended its highly accommodating monetary policy in September, among other things by lowering the deposit rate and resuming its bond purchases as of November 2019 for a total of €20 billion per month.

I like the way they have cottoned onto my idea that markets mostly respond to QE before it happens and sometimes quite a bit before.

As a result, Eurozone sovereign yields entered negative territory (in the spring for the German ten-year yield and in the summer for the French yield).

Fiscal Policy

There is a clue above that there have been ch-ch-changes. That is represented by the ten-year yield in France being -0.1% as I type this. Borrowing is not a complete freebie as the thirty-year yield is 0.7% but ECB policy ( 420 billion Euros of French government bonds and about to rise) means France can borrow very cheaply.

France is taking more of an advantage of this than my country the UK because it borrowed at an annual rate of 3,5% of GDP in the first quarter of the year and 3.4% in the second. Contrary to much of the official rhetoric we see rises of the order of 1% of GDP here so we can see how domestic demand in the economy has been “resilient”. It is also presumably a response to the Gilet Jaunes issue.

France in debt terns is quite tight on a big figure change and Japan excepted the big figure change as the debt to GDP ratio was 99.6% at the end of June. It will be under pressure from the extra borrowing and thus very dependent on economic growth remaining to stay under 100%.

The number being like that explains why the Governor of the Bank of France diverted us somewhat when he was in New York a week ago.

The euro area has a lower level of public debt (85%) than in the United-States (104 %) or the UK (87%),

Actually the UK is in fact below 85% so it was not his finest hour.


Today’s journey brings us two main themes. The first is that the French economy has been boosted by some extra government spending. This is in stark contrast to Germany which is running a fiscal surplus. But the ~1% of GDP increase seems to have got a little lost in translation as economic growth has only been ~0.6% so far. However it is a case for counter cyclical fiscal policy as otherwise the French economy may have contracted.

Now we see signs of a downwards turn in the already weakened manufacturing sector which poses a problem with fiscal policy already pushing the boundaries of the Maastricht rules. Also if we look deeper I find this deeply troubling from the Governor of the Bank of France.

Despite this gloomy context, the French economy is resilient, with growth at 1.3% close to its potential.

This is a reference to what is the new central banking standard of annual GDP growth having something of a speed limiter at 1.5%. Let me give you two problems with it. Firstly they seem to get a free pass as to their role in this as one of the biggest changes has been their own actions. Secondly it ignores countries like Spain which may now be slower but have in recent times done much better than this.





6 thoughts on “Worrying signs for the economy of France as the manufacturing downturn bites

  1. Although todays BLOG is about France I take the view one must look at the wider picture and focus on the global downturn.

    Whether it be France, Germany or any other country in Europe the global downturn is going to affect most countries in the world as the contagion spreads.

    Today the CBI gave a further warning on UK as a consequence of BREXIT and all know that saga is to continue and a possible election in the UK will cause further uncertainty.


    The printing presses will be geared up for more QE in various countries in Europe and the UK for that matter and the only way for interests rates is down and negative.

    Mervin King warned of possible “financial Armageddon” to come (link below) with the continuing slow growth and in other articles warned the world is “sleepwalking” into another financial crisis.


    With world debt in numbers too high too type here and at a frightening level, countries investing in infrastructure projects to boost various economies will just increase debt further. That is questionable in my view.

    I tend to look back on what Gillian Tett said in the last financial crisis, when she said there would have to be defaults and that would cause pain.

    In my simplistic view of economics, I cannot see how the world is going to resolve these problems without a further financial crash, the only way out of this per country is producing more for less and increasing government spend contradicts that theory imo.

    So in the meantime QE we will go on interest rates will continue to fall and go negative at that. What will follow is we will indeed sleepwalk into the next global financial crisis and it will be worse then the last one.

    I say the above with a caveat that no one can predict the future we can only make a guess on various analysis but I that is difficult as I cannot remember any previous times when the world debt has been so high with slow growth and low or negative interest rates.

    It is possible therefore that things don’t work out as bad as all this but someone has to take the hit they have to take the pain.

    I just hope its the rich which bear the pain wherever they are hiding their assets, I suspect many of the rich right now looking where they can invest their money where they think its safe. Its a lottery now and the odds of winning will get higher by the week as the global debt pile increases.

    My moral for today is help the needy not the greedy, I could quote Bible verses of which there are many but readers will get my point.

    • Sorry to readers if they think I am the prophet of gloom and doom but there were 2 reports from both Caterpillar and Texas instruments to add to evidence of a global downturn today:



      As being an investor in a manufacturing company for many years, I recall vividly talking to one if its directors who told me at the time, the manufacturers feel the first of the pain before the rest of the economy suffers and I think that is right. Suppliers deplete their stocks and orders manufacturers start to slow down well before the suppliers feel the pain and the end user or retailer.

      There will be cases where other end users find themselves in trouble first but its the manufacturer who feels the first slowdown and they are the first to see the light when things turn round. Without the manufacturer providing orders the supplier has no stock the end user or retailer cannot sell. All that makes sense to me and I hope it makes sense to readers.

      Now when you look at the UK the US, Europe most countries have seen a manufacturing in decline, all the pointers suggest a global downturn and one which is having significant ramifications which in turn will affect the UK Europe, the US, China and Australia and anywhere else for that matter where they are involved in inter-related trade.

    • “…we will indeed sleepwalk in to the next global financial crisis …”

      I would have said its more of brisk walk …….. 😉


      • forbin,

        There will be some of us in particular you and I who will say after the event, ‘I told you so’, the signs were there’!

        We wont be on out own, whether it be Carney or King they have already been giving warnings, but no one seems to have a clue what to do about the situation.

        They will all be blaming one another, no one country is immune, the Oligarchs been investing in the UK and other rich Saudi individuals pumping up property prices in the UK hoping they are reasonably safe.

        In the short term they will do all they can to prevent a collapse but I don’t think our so called economists who head or have headed the banks would be giving so many warnings unless they really felt that trouble is brewing.

        I think China is one of the biggest worries its been thought for a long while now much of the debt been done on the dodgy banking sector, I cannot think just at the moment of the proper terminology of the wording.

        • Hi Peter

          Should things go wrong again then a lot of eyes will turn to the central banks. It has been their policies which have kept the zombie banks and companies alive and stopped any chance of a proper recycling and clear out. But faced with trouble I too believe that they will just give us more of the same as in lower interest-rates and more QE. My subject of today, France is already experiencing that,

          • Shaun, absolutely. And fakers like WeWork “innovator” gets paid off millions. Crazy crazy world. At least France has some nice infrastructure unlike UK.

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