The economy is contracting in France, the recession is taking shape in Europe – La Tribune.fr

The specter of recession hangs over the tricolor economy. After a disappointing first half, French activity plunged into a contraction zone in August. The PMI index, that of purchasing managers, unveiled on Tuesday, August 23, fell into negative territory at 49.8 against 51.7 in July. This is a year and a half low. As a reminder, activity is down when the index is below 50 points and expanding when it goes above it. “High inflation, combined with a fading post-pandemic rebound in demand, has led businesses and consumers alike to cut non-essential spending, leading to the first decline in demand for services since March 2021,” the official said. economist, Joe Hayes in a statement. As the political return to school looms, the government will have to deal with an economic situation that is worse than expected. Even if the second quarter was better than expected at 0.5%, the end of the year promises to be perilous. Indeed, the dark scenario of a Russian gas cut could deal a severe blow to the economy of the Old Continent. The German PMI index hit its lowest level in nearly two years in August at 47.6. Across the Rhine, the economy is heading straight for a recession at the end of the year. Added to this is the tightening of monetary policy in the euro zone, which could suddenly slow down activity. The ECB strikes hard to fight against inflation, the new obsession of Christine Lagarde Industry in the red The engines of French industry are running out of steam. The manufacturing industry index fell to 49 points in August from 49.5 in July. This is a 27 month low. Since the start of the pandemic in March 2020, Made in France has been hit hard by multiple difficulties. Between supply chain shambles, rising energy prices, component shortages and border closures, many factories have had to scale back or even halt production. All industries dependent on foreign countries are still struggling to obtain raw materials. In addition, manufacturers have to deal with the disastrous consequences of inflation. Indeed, demand has collapsed in recent months in the manufacturing sector. This decline in the industry could have cascading effects in many services. Some of the activities previously accounted for in industry are now outsourced to the tertiary sector. Thus, even if the weight of industry in the GDP has been greatly reduced, many SMEs and VSEs depend on industrial activity. Finally, even if the fall of the euro against the dollar allows French industry to gain in competitiveness, this depreciation fuels the costs of certain imports denominated in dollars. This risks fueling inflation imported from abroad. The euro hits its lowest level in 20 years against the dollar Services resist As for services, activity slowed down in August to 51 points against 53.2 points in July. This is a 16 month low. Despite this downturn, activity remains in positive territory in services. The return of foreign tourists after two long years of pandemic has boosted demand in the territory and accelerated exports of services. The drop in domestic demand in 2022 could, however, weigh on consumption of services by the end of the year. Given the weight of the tertiary sector in the tricolor economy, growth could thus mark time in the fall. Growth, inflation: the OFCE darkens its forecasts for the French economy Inflation still threatens After reaching 6.1% in July, inflation still threatens activity. Indeed, the French have already started to tighten their belts since the beginning of the year. Income from work in the private sector plunged in the first half of the year according to recent statistics from the Ministry of Labor. This decline concerns all professional categories. Apart from the minimum wage, wages have not been indexed to inflation since the early 1980s. As a result, employees are losing purchasing power. INSEE expects a decline of 1% this year. For its part, the OECD forecasts, in a press release, a fall of 1.9% in real per capita income in 2022 in France. This is the largest decline of the G7 countries, the seven largest economies on the planet. Government measures (tariff shield, rebate on petrol, revaluation of social minima) have made it possible to limit inflation, but a large part of the working population is bearing the full brunt of inflationary pressures. On the eve of the start of the school year, many households have to face incompressible expenses for supplies and stationery in particular. Back to school: inflation has a devastating effect on the budget of the French, especially students The euro zone is dangerously close to technical recession On the side of the euro zone, the indicators turn red one after the other. After a strong rebound in 2021 post-covid, growth is expected to slow sharply in 2022. According to the latest PMI index, activity contracted in August to 49.2 after an initial decline in July at 49.9. With two months of consecutive declines, the eurozone economy is approaching technical recession. This phase is defined by two consecutive quarters of decline in activity. “The latest PMI data points to a contraction in the eurozone economy in the third quarter of 2022,” economist Andrew Harker said in a statement. With regard to the consumer price index, economic analysts still fear a rise in the coming months in the monetary union. “The inflationary shock is very important. The peak of inflation is probably still ahead of us. The rise in the harmonized consumer price index (HICP) could reach 10% in the fall in the euro zone. Such inflation could significantly cut into corporate margins,” BNP Paribas economist Hélène Baudchon recently explained to La Tribune. Geopolitically, the war in Ukraine continues to destabilize all of eastern Europe. Even if the combined weight of Ukraine and Russia in the world economy remains limited, the continuation of the conflict could still do a lot of damage. Surprise rebound: France avoids the recession scenario for the moment