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(Bloomberg) — French business activity shrank at the quickest pace in five and a half years as higher energy prices hit consumers and firms.
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S&P Global’s Composite Purchasing Managers’ Index sank to 43.5 in May from 47.6 in April — holding below the 50 mark separating expansion from contraction for a fifth month. Analysts polled by Bloomberg had anticipated a slight improvement.
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The manufacturing and services gauges both plunged, with companies saying the Iran war is pushing up fuel and energy costs and causing more general “economic angst,” S&P said.
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“This shock has materially lifted recession risks for the eurozone’s second-largest economy,” Joe Hayes, principal economist at S&P Global Market Intelligence, said Thursday in a statement, describing the numbers as “dire.”
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“The concern is that a broader uplift in the economy’s overall price level raises the risk of further demand destruction,” he added.
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The resilience of France’s economy “is starting to be put to the test,” the central bank said this month, refusing to predict what will happen this quarter following a surprise stagnation in the first three months. In a sign that the situation is deteriorating, unemployment has unexpectedly risen to its highest level in five years.
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Higher interest rates are likely to present another headwind, with the European Central Bank mulling a hike next month and markets pricing two more after that. Euro-zone PMI data will arrive later this morning.
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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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—With assistance from Harumi Ichikura, Mark Evans and Joel Rinneby.
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