Sentiment in manufacturing was surprisingly firm this month according to the new INSEE survey. At 103 the business climate indicator was up a point versus its November reading and just a point short of the multi-year high recorded in September. The index thus moved a little further above its 100 long-run average value.
However, morale for the economy as a whole slipped a point to 101, a 3-month low as the improvement in manufacturing combined with a 1 point gain in construction was more than offset by a 2 point decline in services and a 4 point drop in retail trade.
In fact the relative weakness of the overall results prompted INSEE to half its fourth quarter GDP growth forecast from 0.4 percent to 0.2 percent. In part this was due to the expected impact on household spending of the November terrorist attacks in Paris. Anticipated consumption growth has been slashed from 0.4 percent to minus 0.1 percent. These effects should be short-lived but make the near-term outlook particularly clouded.
The indicator is a measure of the prevailing sentiment among French business leaders. The main focus is the manufacturing sector but the survey provides separate sentiment measures for construction, retail trade and services on a monthly basis and for wholesale trade every other month.
If you are looking for clues on French business sentiment, this survey would be a good starting point. The indicator is based on a survey that asks business leaders about their expectations for new orders and their overall impressions of the economy. The results are a diffusion index that reflects the difference between positive and negative responses as a percentage of the total number of answers. It uses 100 as the dividing line between positive and negative sentiment.
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