France is running out of steam. The PMI index (“purchasing managers index”), which measures the level of activity through a survey, stagnated during the month of August, remaining at 46.6% after a month of July already marked by a drop. Above 50 points, the index effectively describes a contraction of the economy. The situation is identical in Europe: the activity index for the euro area fell to 47, that is, 1.6 points less than in July, and the lowest level in almost three years.
Services slow down
Above all, if the manufacturing industry continues to be, as expected, the bad student, the contagion spreads to services, which in turn catch a cold: they point to 46.7 points, their lowest level in 30 months, and the third consecutive month of decline. One factor to take into account, according to Philippe Waechter, chief economist at Ostrum Asset Management, a guest of BFM business ce mercredi soir: “La dynamique des services, qui maintenait l’indicateur vers le haut, s’est cassée en France, en Allemagne et dans la zone Euro. Cela tire tout vers le bas car l’industrie manufacturière n’allait pas très good”.
Employment is the second variable of concern: if the labor force continues to expand in France in recent weeks, it is doing so at a slower pace. And if companies continue to live off their pending contracts, the expected drop in activity will quickly have an impact on hiring.
Thus, France was able to see the end of the beautiful spring seen in the second quarter, where GDP outperformed rather than held up, gaining a 0.5% rise. Even less harsh than the rest of Europe: elsewhere, hiring is already on hold, and the PMI survey notes “weakening demand and diminishing twelve-month prospects for activity.”
The UK falters, the US stagnates
On the other side of the Channel, the United Kingdom is in a different situation, with August down (47.9 compared to 50.8 in July), but which represents the first economic contraction in six months. Inflation should remain subdued there, according to S&P (which publishes PMI figures), and the associated drop in consumption, combined with falling exports, should lead to a drop in activity in August. The Bank of England also carried out the fourteenth rise in its interest rate at the beginning of August, to 5.25%, in an attempt to calm the rise in prices.
The United States, for its part, is experiencing a healthier period, if not a glorious one: the PMI index remains just above 50 points, with 50.4 in August compared to 50.2 in July. But manufacturing sinks permanently below this level, when services lose more than one point, to stand at 51 in August.
Above all, inflation is paid for by companies: S&P points out that inflationary pressures (materials, energy) have increased, but that the efforts of companies to remain competitive have erased them. Hence a paradoxical situation of return inflation, with no impact on growth or prices, as described by Philippe Waechter.
Powell and Lagarde in Jackson Hole on Friday
Because, in fact, it is difficult to hide the responsibility of the rate policies applied for a year and a half by the European and American central banks on economic activity: the ECB raised its rates by 0.25 points at the end of July for the for the ninth time in a row, until they were above 4%, when the Fed simultaneously chained its eleventh rate hike, with a rate range of between 5.25 and 5.5%, unprecedented since the financial crisis of 2008.
This rate policy is struggling to curb inflation, which stood at 3.2% in the United States in July after reaching 3% in June; in the euro area, it stagnated at 5.3% compared with 5.5% in June. Above all, it has the effect of slowing consumption and making it more difficult to obtain loans and finance the economy. So Jerome Powell and Christine Lagarde are eagerly awaited this weekend in Jackson Hole, Wyoming, USA, for the annual meeting of central bankers. Their respective speeches on Friday morning may – or may not – initiate a reversal at the risk of an economic slowdown in the offing.
Source: BFM TV
