French vs German pricing indexes – don’t believe the hype

23 Nov

Europe’s Teutonic juggernaut could be more unstable than it looks, figures revealed this week. For once, France has overtaken Germany in the two-horse race that unfolded in the release of Markit’s Composite Purchasing Managers’ Index (PMI). Why have German service providers suffered a lag, while France’s PMI rose from 45.5 to 46.2?

The answer to the diminution of Germany’s service sector, from 48.4% to 48%, could be simply that managers are reacting pre-emptively to pessimistic outlooks for the future. Demand for contracts has fallen in recent months, and managers have slashed jobs in response, and because they believe – as does the Bundesbank – that Germany will continue to experience sluggish growth.While last year it expanded by 3%, in 2012 economic growth for Q2 was 0.2%, rising to just 0.3% in Q3.

Markit said: “Reports from survey respondents overwhelmingly cited weakness in export markets, especially southern Europe. A number of firms also mentioned subdued demand from the automobiles sector. Some panel members pointed to signs of a slowdown in Asia, especially for investment goods.”

However the IFO business climate index for industry and trade, key indicator of the health of the German economy, paints a different picture. The figures are still negative, but less so than the figures for October: trade and industry, -4.2; manufacturing,  -6.5; construction still flagging at -7.5, while the wholesaling index entered positive integers at 4.9. President of the IFO Institute Hans-Werner Sinn explained that it had risen “again after six successive decreases. Companies expressed slightly greater satisfaction with their current business situation. They were also far less pessimistic about future business developments.” Perhaps the price index simply reflects a prudent caution towards the start of 2013.

And France’s bullish outlook is not necessarily based on concrete fact. In fact, the report indicates that its economic situation is probably worse, with unemployment still rife in manufacturing and services provision – though improved from September’s 33-month low. Its principal problem is lack of confidence and uptake by external investors. Markit reveals: “There were reports that clients, especially some firms in the autos sector, had postponed orders and reined in investment,” due to concerns over “domestic weakness.”

These fears over the climate fostered by Hollande’s government are unlikely to be allayed by the election of right-wing firebrand Jean-François Copé to the head of principal opposition party, the UMP (Union pour une Mouvement Populaire). The UMP has recently adopted a new ‘Islamic Charter’ which talks of reclaiming France’s Judaeo-Christian roots and Latin heritage by prohibiting muslims from praying in public, and from minarets, and from having a distinct voice in local government. If socialism fails, so it seems will social cohesion.

Juggernaut vs the Hulk

Clash of Central Europe’s Economic Titans

On the other hand, there is talk of taking the prestigious university Ecole des Sciences Po, which trains state functionaires, back under state management. So if the private service sector flags, France will not at least be deficient in civil servants.


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