Output contraction accelerates in January, driven byservicesFurther weakness potentially caused by regional 'gilets jaunes'disruptionDivergence with INSEE business survey emerges in January, butPMI often acts as a leading indicator
January data from the IHS Markit France PMI surveys pointed tothe fastest contraction in private sector output since November2014. This was shown by the seasonally adjusted Composite OutputIndex registering below the neutral 50.0 mark at 48.2 in January,down from 48.7 in December. January's weak performance was drivenby the service sector, with firms recording a sharper fall inbusiness activity compared to December, and the fastest overalldecline for almost five years. Meanwhile, manufacturers saw outputcontract only fractionally in January, after the quickest downturnfor over three-and-a-half years in December, which represented amove towards stabilisation.
PMI shows regional disparities
The latest results may appear surprising, given that thenationwide 'gilets jaunes' protests were a key reason behind theinitial downturn in December, and have become less widespread atthe start of 2019. However, an experimental regional breakdown ofthe France services PMI indicated that sharp and accelerated fallsin business activity were largely confined to two main geographicalareas. Notably, these regions appear to be where protests are stillat their most intense, namely in Paris and the South West. Thecontractions seem to have more than offset a rebound seen in otherparts of France, suggesting that lingering protests can explainsome of the weakness seen in the service sector at the start ofthis year.
Divergence from INSEE survey
A divergence with the INSEE Business Climate Indicator alsohighlighted the surprisingly weak PMI results during January. Theindices are strongly correlated over the past two decades, but inthe first month of 2019 resilience in the INSEE composite indicatorcontrasted with the contraction seen in the Composite Output PMI.Underlying data suggested that the divergence was due to differingservice sector results, as there was a slight improvement in theINSEE services indicator, while the rate of contraction signalledby the PMI accelerated.