(Bloomberg) -- Private-sector business activity in France shrank for a fourth month as the fall of the government over a budget dispute sapped confidence.
S&P Global’s Composite Purchasing Managers Index came in at 46.7 in December, staying below the 50 threshold separating expansion from contraction. Still, it’s an improvement from last month and also a bit better than the median estimate among analysts in a Bloomberg survey.
Manufacturing and services also stayed in contractionary territory, though the latter exceeded expectations.
“France’s crisis shows no signs of abating,” said Tariq Kamal Chaudhry, an economist at Hamburg Commercial Bank who sees “no hope” for recovery. “The industrial sector remains the Achilles heel of the French economy, and even the relatively better-performing services sector fails to provide any growth impetus.”
French politics have been rocky since early June, when President Emmanuel Macron called snap parliamentary elections. The vote resulted in a deadlock that left new Prime Minister Michel Barnier, appointed in September, lacking a majority. He was toppled this month.
France also saw its credit rating downgraded by Moody’s Ratings over the weekend, which cited a “very low probability” that the new government will sustainably reduce the size of fiscal deficits beyond next year.
It’s unclear how Barnier’s successor, Francois Bayrou — named Friday — can improve matters.
“Bayrou lacks support from both the left and the right, suggesting he may face the same fate as Barnier,” Chaudhry said. “Instability appears to be here to stay.”
France’s economy will probably grow by 1.1% this year, helped by the Olympic and Paralympic Games in Paris, according to the European Commission. With that input missing in 2025, expansion of just 0.8% is predicted.
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.
The French data come ahead of German and euro-zone number later on Monday that both are expected to show readings below 50.
--With assistance from Joel Rinneby, Mark Evans, Mark Schroers and Alexander Weber.
(Updates with credit downgrade in sixth paragraph.)
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