French Business Climate Deteriorates as Inflationary Pressures Persist
Aa
Share
French business climate deteriorates again, inflationary pressures remain high
The business climate in France has deteriorated again in November, a further sign of the worsening outlook for activity over the coming months. Growth is expected to slow. At the same time, the PMI indices indicate that inflationary pressures remain high and that disinflation will take time.
Further deterioration in the business climate
In detail, according to the data published by INSEE, the business climate indicator reached 97 in November, down by one point over one month, and reaching its lowest level since April 2021. The deterioration in the French business climate is mainly the result of a more unfavourable conjunctural situation in both wholesale and retail trade, where order intentions and the volume of past sales are down. The business climate is also less favourable in the construction sector, due to a marked fall in the balance of opinion on planned staffing levels. By contrast, business sentiment remained stable in both industry and services.
Labour market continues to cool
Furthermore, the employment climate confirms the cooling in the labour market, with the indicator dropping two points over the month to its lowest level since spring 2021. This suggests that the rise in the unemployment rate seen in the third quarter is likely to continue in the coming quarters, due to the weaker economic outlook, but also due to the expected increase in the labour force as a result of the rise in the retirement age. We are forecasting an unemployment rate of 7.6% at the end of 2023 and 7.9% at the end of 2024, compared with 7.4% at present. Interestingly, the deterioration in the employment climate is coming mainly from the services sector, where companies are much less optimistic about future headcount. This seems to indicate that the economic slowdown is no longer confined solely to the industrial and construction sectors, but has reached the services sector, which is likely to perform much less favourably over the coming quarters.
