After discussing the problems facing the UK economy I intend today to take a short hop over the channel which of course then becomes La Manche to examine the French economy. Back on the first of February I wondered if France was using the campaign in Mali and “La Gloire” as a distraction from her weakening economy. After all such moves do make frequent appearances over the course of human history. Also there are considerable potential implications for the Euro project because La Republique is supposed to be at the heart of it rather than being afflicted by the cancers which are eating up much of the periphery.
What is the problem?
Last November the ratings agency Moody’s put it thus when they downgraded France
France’s long-term economic growth outlook is negatively affected by multiple structural challenges, including its gradual, sustained loss of competitiveness and the long-standing rigidities of its labour, goods and service markets.
Not a hopeful prescription! Also the outlook back in February was not optimistic as the composite purchasing managers index was at 42.7 where 50 is unchanged. This caused quite a shock at the time so let us see how subsequent events have backed it up.
The numbers below are even worse than the grim series unveiled by the UK yesterday.
Over the last three months, manufacturing output went down by 2.1%……and was lower than its last year’s level by 4.6%.
If we move to the wider overall industrial production figures we see this.
In January 2013, Output decreased also in industry as a whole (-1.2%)
Tucked away in the report we see that it had fallen by 1.5% in the previous 3 months and by 3.3% compared to a year before.
If we look at the underlying numbers which rather familiarly have been rebased (odd how frequently that is happening!) to 2010 =100. However we see industrial production at 97 and manufacturing at 97.3. So to pose my challenge to the UK yesterday to France we see that there are plainly potential depressionary forces at play there too.
Indeed if we look back past the credit crunch and see when these measures were last at such levels we need to go back twenty years to 1993 where for example in January industrial production was at 97.1. So on this measure France has already faced two lost decades and we start to wonder if she has been n a depression without fully realising it.
Regular readers will be aware that in my view employment trends have been a prescient guide as to what will happen next in the credit crunch and we have new (revised) data this morning.
In Q4 2012, payroll employment in principally market sectors decreased by 0.3% q-o-q (- 44,600 jobs), after -0.3% (-46,000) in the previous quarter. Excluding temporary work, employment decreased sharply in Q4 2012 (-35,300 jobs).
So we see that the trend is down and if we peruse the 99,500 fall over the last twelve months we see that the decline was concentrated in the second half of 2012 and has accelerated. The total of 15,950,500 in this sector is back to 2006 levels if the chart is accurate.
What about unemployment?
Last week the French statistics agency informed us that this was still rising.
The unemployment rate increased by 0.3 percentage points in Q4 2012 in metropolitan France…….In Q4 2012, the average ILO unemployment rate in metropolitan France and overseas departments stood at 10.6% of the active population.
So unemployment is rising and we have more than a lost decade on this measure as it was last at such a level in the summer of 1999 when the fear was the millenium bug rather than the Euro crisis. Over 2012 the unemployment rate rose from 9.8% to 10.6%. So we see that France has a rather toxic mix of rising unemployment which in the latter part of the year was joined by falling employment.
Bank lending to businesses
The Bank of France published its latest monthly survey on bank lending to businesses this week and you get the idea by the fact that over the past ten months dimunition was required nine times and augmentation once! If we look at the numbers for February then the report tells us that 57.8% of banks feel that perceived borrowing by businesses is falling and the other 42.2% think that it is unchanged whilst no-one thinks that it is rising! Over the past ten months the total percentage in the rising bank demand category is 15.2% out of a potential 1000% whereas falls represent 312%.
In addition we see an ever more familiar theme as we note that the position for smaller businesses or what are called SMEs (PMEs in France) is even worse.
Tucked away at the bottom of the report was this.
The evolution of the outlook for economic activity again led some banks to tighten somewhat their criteria for granting housing loans and / or to increase their margins on riskier of them.
That looks like another credit crunch for a housing market to me. It is also something of a contradiction to the official view that the actions of the European Central Bank have dealt with this issue. For sovereign nations and politicians it has for now but as ever the banking system is broken and does not pass it on properly.
Bank of France business surveys
These are an example of Kylie Minogue’s “Spinning Around” because as presented a rise is described as “improved somewhat” but a fall of twice the size is apparently “stable”. Oh dear! Anyway here are the readings.
The business sentiment indicator in industry stood at 96 in February 2013, after 95 in January.
The business sentiment indicator in services stood at 88 in February 2013, after 90 in January.
These measures are both long-serving (1981 and 1987) respectively so the fact that they are below 100 and in the case of services well below and falling is an ominous sign.
This comes on top of a poor 2012
In 2012 Q4, French gross domestic product (GDP) in volume* stepped back (–0.3%), after +0.1% the previous quarter. Over the year, GDP growth was null in 2012,
So in Eurovision terms nil points for 2012.
This has become something of a signal for problems in the Euro area and I have discussed it over the past fortnight with reference to Ireland and Italy in particular. If we see that 2012 at 1.9 million was a fifteen year low in France we may already have concerns for 2013 and so far they are proving correct.
In the first two months of 2013, with 268,164 registrations, the French market cars Passenger is down 13.5% unadjusted and 11.5% in number of working days comparable compared to the same period of 2012
With 6490 registrations from January to February 2013, the French market for commercial vehicle over 5 tons is down 16.1% compared to the same period of 2012.
I think they speak for themselves.
What about financial markets?
The Euro remains strong at just over US $1.30 and 1.15 versus the UK pound. Also the French government bond market is apparently healthy as its ten-year yield is very low by historical standards at 2.09%. The equity market is in rude health too with the CAC 40 equity index at 3825 is up 8% over the past year. So we have yet another disconnect between financial and real markets as the rally has happened as the economy has declined.
After my update of yesterday the obvious question to pose is this. Is France on the edge of an economic depression too? If we look at her employment situation then we have to conclude that there are real dangers. If we look at her production sector which Doctor Who style has taken a twenty year leap into its own past the answer is unequivocally yes. We get pretty much the same answer from car sales.
If we look for what might get her out of this mess we see that the sector which often leads which is housing is facing tightening rather than loosening credit conditions according to the Bank of France. So the list appears short and maybe empty. Along that road we also have to consider what this is doing to the French banks and whether former President Sarkozy’s claim that bank problems were an “Anglo-Saxon” issue will be a spectacular own goal.
An individual called Thomas Stolper who works at Goldman Sachs put out a buy Euro and sell the pound recommendation yesterday. As you might expect from a man whose record has been discussed on here before as minus nine out nine it has shot in the other direction! Now comes the bit that can mess with your mind a little but I think that he is doing what his employers tell him to do……