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(Bloomberg) — French business activity shrank for a sixth month after higher energy costs sparked by the Iran war hurt confidence and consumer spending.
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S&P Global’s Composite Purchasing Managers’ Index rose to 47.6 in June from 44.9 the previous month, staying below the 50 mark separating expansion from contraction. Analysts polled by Bloomberg had anticipated an increase to 46.
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The main culprit was still the services sector, whose index remained well below 50 despite improving more than expected. Manufacturing, meanwhile, managed to breach that level.
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The numbers point to “frail economic conditions across the eurozone’s second-largest economy, as substantially greater inflationary pressures since the onset of the Middle East war have eroded client purchasing power and hit demand,” Joe Hayes, senior principal economist at S&P Global Market Intelligence, said Tuesday in a statement.
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France saw its economy shrink and unemployment rise even before the Iran war dealt a blow to confidence. A recession should be narrowly avoided, according to the central bank. But consumer spending, the primary growth driver, will stay weak as inflation broadens beyond energy and the government shuns large-scale aid for households, statistics agency Insee said.
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Official projections put this year’s likely advance in gross domestic product at 0.5% to 0.7%, the slowest pace since 2012 excluding the pandemic slump. Such weakness is compromising efforts to curb the budget deficit. The Middle East conflict is likely to result in hit to public finances of at least €6 billion ($6.9 billion), according to the Finance Ministry.
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Separate data on Tuesday showed manufacturing confidence dropped two points to 100 in June, marking a surprise deterioration as companies cut their assessments of past production and as their expectorations for future output continued to decline.
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S&P’s survey was conducted from June 11-19, capturing the first days after President Donald Trump signed his memorandum with Iran.
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PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.
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Euro-zone PMI data will arrive at 10 a.m. CET.
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—With assistance from Harumi Ichikura, Joel Rinneby, William Horobin, Nick Heubeck and Mark Evans.
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English (US)