The yellow vests and the French economic outlook

Two surveys were made on the French economy. One by the French national institute for statistics (INSEE) the other by Markit. In January their behavior is a bit different with a stabilization for the INSEE index (business climate) above its long term average while the composite index for Markit dropped below the 50 threshold for the first time since February 2016. The Markit index is particularly weak on the service sector. Yellow vests’ demonstration every Saturday is a source of concern for malls, restaurants, hotel, transportation …hitting their momentum.
Nevertheless, the two indicators show the same business cycle. Both are in negative territory as is shown on the graph. There was probably over optimism in the Markit index. It has normalized rapidly.

This phenomenon can be further characterized by comparing the Markit synthetic indicator trajectory with the quarterly GDP profile. The message is that GDP growth in late 2018 and early 2019 will be very weak. The growth figure of the 1.7% discussed during the last budget law will never hold. The target is now around 1%.

In all cases orders continue to slow down and we can not spontaneously expect a strong revival of production. Industrial production will continue to contract as the graph suggests.

In this environment, the economic dynamics of the Euro zone will not help. The composite index for production in the Euro zone is at its lowest since July 2013. The impetus is not to be expected from that side.

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