French Manufacturing PMI Resembles that of Greece Rather than Germany

The monthly €80 billion ECB’s quantitative easing, harmful internal reforms and high public deficit have not helped the French manufacturing sector which has contracted for the third straight month in May, even if the reading was insignificantly higher than expected. The Markit Eurozone Manufacturing PMI posted a three-month low in May. The euro area has stuck in stagnation and France has joined Greece as a main concern.

Mario Draghi’s policy did not prevent the widening of the economic gap between Germany and France. PMI data shows that both the imbalance between the two countries and Germany’s power within the monetary block have increased. From the latest PMI data one can conclude that the cheap euro improves German economy while it cannot prevent France from falling further behind. While Germany’s ruling elite are voicing a vehement opposition to the ECB’s policies, it is absolutely clear that the Paris Establishment are not amused by the result.

May PMI data released by the provider of financial information services Markit signalled a further shrink in the manufacturing sectors in France and Greece (both posting 48.4; a reading above 50 indicates expansion in the sector, while a reading below 50 indicates contraction). For France, PMI has remained below 50 for three months; for Greece, the decline in May was the fourth consecutive negative output.

Country	May PMI	Forecast	April PMI	Annotation
France1)Markit France Manufacturing PMI® – final data, Source: Markit 2016-06-01	48.4	48.3	48.0	The rate of contraction has quickened to the sharpest since April 2015.
Germany2)Markit/BME Germany Manufacturing PMI® – final data, Source: Markit 2016-06-01	52.1	52.4	51.8	PMI at four-month high.
Greece3)Markit Greece Manufacturing PMI®, Source: Markit 2016-06-01	48.4	–	49.7	Greek manufacturing sector has deteriorated in each of the past four months, with the latest headline figure being the joint-lowest since November 2015.
Italy4)Markit/ADACI Italy Manufacturing PMI®, Source: Markit 2016-06-01	52.4	53.0	53.9	The index was at its lowest level since February.
The Netherlands5)NEVI Netherlands Manufacturing PMI®, Source: Markit 2016-06-01	52.7	–	52.6	Further solid improvement in business conditions.
Spain6)Markit Spain Manufacturing PMI®, Source: Markit 2016-06-01	51.8	52.6	53.5	“The Spanish manufacturing sector moved closer to stagnation in May, suggesting that the current period of expansion could be coming to an end.”
UK7)Markit/CIPS UK Manufacturing PMI®, Source: Markit 2016-06-01	50.1	49.6	49.4	“It is likely some manufacturers are maintaining a financial shield as a barrier against the uncertainties still affecting the sector, including those arising from the forthcoming EU referendum.”
Eurozone*8)Markit Eurozone Manufacturing PMI® – final data, Source: Markit 2016-06-01	51.5	51.5	51.5	May PMI data signalled a further growth slowdown in the eurozone manufacturing sector.

* including Germany, France, Italy, Spain, the Netherlands, Austria, Ireland and Greece

This is how Chris Williamson, the chief economist at Markit, sees the condition of the manufacturing sector in the euro area:

“Manufacturing in the euro area remained stuck in a state of near-stagnation in May, failing to break out of the slow growth phase that has plagued producers since February.

“The disappointing performance of manufacturing adds to suspicions that the pace of eurozone economic growth in the second quarter has cooled after a surprisingly brisk start to the year based on the latest estimate of GDP.

“New orders grew at the slowest rate for over a year as demand showed signs of waning both within the euro area and further afield. Not surprisingly, companies remain reluctant to build capacity and take on extra workers, lacking signs of any imminent upturn in demand.

“France and Greece remain the key areas of concern, both seeing manufacturing contracting again in May. Worryingly, however, growth has also slowed sharply in previously fast-growing countries such as Spain, Italy and Ireland, meaning there are now no signs of robust manufacturing growth evident across the region.

“The overall slowing of manufacturing activity confounds expectations that recoveries will accelerate on the back of the ECB stimulus announced earlier in the year. Hopes remain pinned on forthcoming corporate bond purchases and new tranches of ultra-cheap bank loans from the ECB providing an extra boost in coming months.”

The European Central Bank can freely boast about its monetary policy, arguing that manufacturing in the eurozone is growing. But what does this overall data mean for citizens of Greece or France, as they see their economies contracting or at least stuck in stagnation, while German, Dutch and Austrian industry are developing not badly, being able to adjust quickly to strict European fiscal requirements?

At the same time, economies of non-eurozone members, like Sweden or Poland, have very good manufacturing operating conditions. Swedish PMI in May was 54.0, Polish: 52.1 (20^th consecutive monthly growth). Czech PMI growth has slowed, but the index in May was still 53.3, with over a three-year growth sequence!

It must be added that PMI is perhaps not widely known, but investors see this index as an indicator of a future GDP growth. Weakening PMI means slowing growth or may even be a forerunner of a recession. French citizens, just like their government, may not withstand a next hit.