(Bloomberg) -- Private-sector business activity in France plunged at the quickest rate since the start of the year as political and geopolitical uncertainties drove an unexpected slump in the services sector.
S&P Global’s flash Composite Purchasing Managers Index came in at 44.8 in November — well below the 50 mark separating expansion from contraction. Analysts polled by Bloomberg had estimated a reading of 48.3, with no one predicting the extent of the drop in the services gauge, which came in at 45.7.
Euro-area bonds edged higher and the euro erased gains against the dollar as traders priced in more interest-rate cuts from the European Central Bank. The chance of a 50 basis-point cut in December doubled from Thursday’s close to about 30%.
“The French economy is being rocked by uncertainties,” Tariq Kamal Chaudhry, an economist at Hamburg Commercial Bank, said in a statement, listing political strife in Paris and the war in Ukraine. “Businesses are heavily impacted by crises both domestically and internationally.”
The data mark a setback for France’s new government, which needs robust economic expansion to help tackle a budget deficit that’s swelled well beyond European Union limits. There’s no sign of relief, according to Chaudhry, who cites ongoing bickering over the fiscal plan.
“Even Prime Minister Michel Barnier’s government is at risk of collapsing, which could jeopardize efforts to reach a budget agreement,” he said. “This is not a good signal for private consumption and investment decisions.”
Plans for tax hikes and expenditure cuts have already drawn anger from corporations that say the measures risk backtracking on years of President Emmanuel Macron’s pro-business policies. French business confidence unexpectedly fell in November, figures released Thursday showed, while a temporary boost from Paris’s Summer Olympics has long since faded.
There’s been some relief in the form of ECB rate cuts. December may bring a fourth reduction of the year in the deposit rate, while markets are betting on another spate of reductions in 2025.
In Germany, the contraction in private-sector activity worsened in November, dealing another blow to an economy that’s now grappling with a government collapse alongside flat-lining growth.
The composite PMI dipped to a nine-month low of 47.3 from 48.6 in October. Analysts predicted a reading of 48.7.
“These figures are bad news,” Cyrus de la Rubia, an economist at Hamburg Commercial Bank, said in a statement. “Until recently, the German economy was stabilized somewhat by the service sector, which was making up for the steep decline in manufacturing. Not anymore.”
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.
S&P Global will publish figures for the euro area as a whole at 10am.
Elsewhere, releases due later in the day are expected to show composite PMIs in the US and the UK remaining comfortably above 50.
--With assistance from Mark Evans, Joel Rinneby and Alice Gledhill.
(Updates with Germany starting in ninth paragraph.)
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