France’s private-sector activity unexpectedly slowed in June, with S&P Global’s Purchasing Manager’s Index falling to 48.2 from 48.9. This was further below the 50 threshold that signals growth, contrary to expectations from analysts in a Bloomberg survey who had anticipated a slight improvement to 49.4.
The slowdown in activity was primarily driven by the manufacturing sector, while services remained more or less stable. Despite the slowdown, France is expected to see GDP expand by 0.1% in this quarter, with a potential boost coming from the upcoming Olympics in July and August.
The uncertainty surrounding the upcoming elections in France has caused businesses to stall and fear tougher economic times. President Emmanuel Macron’s announcement of a snap parliamentary vote following a poor performance in European elections has spooked investors and led to market turmoil. The far-right and leftist political forces competing for power have faced criticism for providing scant detail on how to address public finance issues.
France was reprimanded by the European Union this week for running large budget deficits, which could potentially lead to significant fines. Lower borrowing costs are currently helping to boost the economy, with expectations of further cuts to the European Central Bank’s deposit rate. These cuts will likely depend on inflation progress towards the 2% target.
PMIs are closely monitored by markets as they often provide early insights into economic trends and turning points
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