This morning has brought some news which has shaken up the consensus somewhat and it has come from France.
In February 2021, output plummeted again in the manufacturing industry (−4.6%, after +3.3%) as well as in the whole industry (−4.7%, after +3.2%). Compared to February 2020 (the last month before the first general lockdown), output remained in sharp decline in the manufacturing industry (−7.1%), as well as in the whole industry (−6.6%). ( Insee)
This was rather against the new theme of manufacturing recovery and coming to terms with new Covid-19 procedures. In particular it gave a very different picture to what the surveys had told us.
The seasonally adjusted IHS Markit France Manufacturing
Purchasing Managers’ Index® (PMI) – a single-figure measure of developments in overall business conditions – posted 56.1 in February, up from 51.6 in January. The latest reading signalled the quickest improvement in the health of the French manufacturing sector for just over three years, and one that was marked overall.
Just to avoid any possible confusion they then rammed the subject home.
The strong reading for the headline index was partially
supported by a renewed expansion in output during
February. The rate of growth was the fastest since last July
and solid overall. Panel members often cited improved
demand conditions when explaining increases in production.
There is quite a journey between the rate of growth being reported as the fastest since last July and a 4.6% decline to say the least.
What is happening here?
If we switch back to the official report we see the following took place in February.
In February, output plunged in the manufacture of transport equipment (−11.4% after −3.0%). It decreased sharply in “other manufacturing” (−4.0% after +3.9%), in mining and quarrying, energy, water supply (−5.4% after +2.8%) and in the manufacture of machinery and equipment goods (−5.3% after +8.8%). It declined more modestly in the manufacture of food products and beverages (−2.0% after +1.6%). Conversely, it continued to expand in the manufacture of coke and refined petroleum after the reopening of several refineries that had been shut down in late 2020 (+11.5% after +6.8%).
If we start with the transport sector there is Peugeot and Citroen for cars but then I thought of Airbus as well. Here are its latest production plans.
The new average production rates for the A320 Family will now lead to a gradual increase in production from the current rate of 40 per month to 43 in Q3 and 45 in Q4 2021. This latest production plan represents a slower ramp up than the previously anticipated 47 aircraft per month from July.
The A220 monthly production rate will increase from four to five aircraft per month from the end of Q1 2021 as previously foreseen.
Widebody production is expected to remain stable at current levels, with monthly production rates of around five and two for the A350 and A330, respectively. This decision postpones a potential rate increase for the A350 to a later stage.
So good in that there is a planned increase but it is hard to avoid noticing that the rate of increase has been reduced and March does not seem to have helped here is we look at what it tweeted yesterday.
We wrapped up March 2021 with 28 new orders including 20 for the #A220-300. 72 aircraft were also delivered last month to 34 customers (four A220, 60 #A320 Family and eight #A350) bringing the total deliveries to 125 in Q1-2021.
If you deliver 72 but only sell 28 then there is an issue for the future. February saw 11 orders but also 92 cancellations.
It has been a rough year for this sector.
and in the manufacture of transport equipment (−25.7%), especially in the manufacture of other transport equipment (−33.6%).
The Overall Economy
Things get rather awkward as according to the consensus it is the manufacturing sector which is pulling the economy along. If we now move to the latest PMI survey we were told this.
Following a six-month sequence of contraction,
latest PMI data pointed to a stabilisation in activity
levels across the French private sector. The result
was predominantly supported by a sharp expansion
in manufacturing output, while the service sector
continued to act as a drag on the economy.
Apparently manufacturing output surged by even more than it did in February posting 59.3. Make of that what you will………
There was a bit of hope for manyfacturing from the household consumption data for February.
Household consumption expenditure on goods was stable in February (0,0% in volume* compared to January 2021). The increase in manufactured goods purchases (+3.4%) was offset by a drop in energy expenditure (–3.1%) and food consumption (–2.2%).
But whilst in the circumstances a flat reading for February might seem okay January was revised down to -4.9% so the year so far has been weak in this area too.
Fiscal Stimulus
This has been in play if we look at the deficit numbers.
The general government deficit for 2020 stands at €211.5 billion, accounting for 9.2% of gross domestic product (GDP), after 3.1% in 2019.
So on the surface we have quite an effort although maybe not as much as it first appears.
Expenditures increased by €73.6 billion, reaching 62.1% of GDP, after 55.4% in 2019.
A lot of the change was lower tax revenue with expenditure rises being a bit over a third of the move.
As to the European Union fiscal response it still seems to be on hold if this from the ECB’s Isabel Schnabel this morning is any guide.
it is crucial for Europe to give a strong fiscal response, in the form of the EU recovery fund amounting to €750 billion. Funds should be used efficiently to make Europe permanently more competitive, more digital and greener.
Perhaps it was described by Bonnie Tyler.
I was lost in France
And the day was just beginning
You might reasonably think the time to spend began a while ago.
Switching to debt we are told this.
General government debt stands at 115.7% of GDP at the end of 2020.
So right now it could easily be 120% if we allow for lower GDP and more borrowing. I suggest that with a wry smile as it was the level suggested by the Euro area as a crisis signal when Greece was rescued into an economic depression. Of course that was then and this is now as evidenced by a benchmark ten-year yield of -0.06% or France is being paid to borrow. As opposed to 3% plus during those Euro area crisis days.
Comment
Today’s production figures pose quite a question for the French economy in the opening quarter of the year. The Bank of France has suggested this.
Based on the assumption that, in average terms, the first half will continue to be marked by significant health restrictions, activity should remain stable over the first part of 2021. This is consistent with our economic surveys for the start of March.
I notice that they avoid a prediction for the opening quarter of 2021 and this morning’s numbers suggest we will see another decline and maybe a solid one. The lockdown issue is of course in play here but those who forecast that production would rise by 0.5% in February knew about that. On its own it takes at least 0.5% off the expected GDP number.
Looking ahead we can at least gain some cheer from the improvement in the vaccine programme which after stumbling has now picked up.
PARIS (Reuters) -More than 10 million people in France have now received a first shot of a COVID-19 vaccine, with the government’s target for that number reached a week ahead of schedule, Prime Minister Jean Castex said on Thursday.
So let us wish them bonne sante