France: Manufacturing expanding at fastest pace in years - ING

France’s preliminary PMI data for August sent mixed signals this morning as while in manufacturing the expansion seen in 2Q17 should continue, it seems that the expansion rhythm is slowing in the service sector, which could impact job creation, explains Julien Manceaux, Senior Economist at ING.

Key Quotes

“The labour market reform to be presented next week could shore up hiring intentions, but it is still far from a done deal.”

“Preliminary PMI data for August show that French manufacturing activity is expanding at its fastest pace in more than two years. The index increased from 54.9 to 55.8. More details on manufacturing sector confidence will be published with the INSEE surveys tomorrow. But today’s PMI 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, boosted in part by the recovering building sector.”

“The picture looks less rosy in the service sector, where the preliminary PMI shows a decline in August from 56.0 to 55.5. This would be its weakest reading since January. If activity is still expanding, a weaker pace would imply that the acceleration in job creation could encounter obstacles in coming months. For the moment, employment growth – though improving – remains subdued. On that front, labour market reform due to be presented next week could increase hiring intentions if it is passed smoothly, which is far from a done deal.”

“All in all, today’s PMIs are an indication of the continuing recovery in France. French growth – having slowed from 1.2% in 2015 to 1.1% in 2016 - is set to rebound to 1.5% in 2017. If the new Government can take profit from the accelerating recovery to implement reforms, GDP growth could accelerate towards 1.7% in 2018.”