French economy contracts in August

24 Aug 2022

French output is in contraction for the first time in 18 months, echoing the trend witnessed in Germany, as the largest economies in Europe deal with soaring inflation and the impact of the war in Ukraine.

A measurement of private sector activity in France by S&P Global declined this month to its lowest point since the pandemic-fuelled disruptions early last year, Business Times reports.

There were declines in new orders in both the services and manufacturing sectors, with businesses reporting the lowest confidence levels since November 2020. Overall, service activity just managed to remain in growth with a reading of 49.8 – the 50-mark separates growth from contraction - whilst manufacturing activity tumbled.

“High inflation and a waning post-Covid boost to demand has led businesses and consumers to cut back on discretionary spending,” said Joe Hayes, an S&P Global economist. “European economies look set for a challenging run into year-end.”

A recession is now increasingly likely within the eurozone, the report goes on to add, as energy costs soar following the war in Ukraine. According to Bloomberg analysts, the eurozone is also preparing for additional interest rate hikes following the European Central Bank increasing rates in July for the first time since 2011.

“The slowdown in the economy is increasingly taking a toll on firms’ hiring activity, with employment growth easing to its weakest for almost a year-and-a-half in August," according to Phil Smith, economics associate director at S&P Global Market Intelligence.

"A first fall in backlogs of work for more than two years points to capacity pressures across Germany’s private sector economy starting to ease and represents a downside risk to job creation going forward,” he added.