France faces recession threat – S&P

The EU's second biggest economy is shrinking, data indicates

France’s economic output is declining for the first time in a year and a half, mirroring the trend seen in Germany, Bloomberg reported on Tuesday, citing S&P Global data. 

According to the report, a gauge of French private-sector activity by S&P Global plunged in August to its lowest level since the Covid-related disruptions of early 2021. It dropped more than economists had expected and slid below the threshold that separates expansion from contraction.

Data showed that new orders declined in both the services and manufacturing segments, as did business confidence. Overall, service activity remained just above the level that indicates expansion, while manufacturing nosedived.

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

In Germany, which heavily relies on Russian energy supplies and is facing the prospect of gas shortages this winter, output began to shrink in July and contracted again in August, S&P Global stated in a separate release.

READ MORE: Inflation in France highest in decades

Europe’s powerhouse is seeing a “deepening decline in private-sector business activity,” Phil Smith, economics associate director at S&P Global Market Intelligence, was quoted as saying. “Continued weakness in manufacturing is being compounded by a slowdown in the service sector, with surveyed businesses reporting a growing strain on demand from high inflation and increased interest rates,” he explained.

Analysts polled by Bloomberg warn that a recession in the 19-member Eurozone is now more likely than not as energy costs are spiking.

Find more stories on economy and finance in TROIB business