French Business Confidence Remains Subdued While Employment Prospects Weaken

July 09, 2012 /

French business confidence remains muted, according to the latest Markit Business Outlook Survey.

Difficult economic conditions domestically and signs of a slowdown in global growth are key concerns for companies, alongside the ongoing uncertainty surrounding the euro crisis and looming tax increases.

June’s survey indicates little meaningful change in confidence from the subdued levels last reported in
February. Indeed, sentiment has been consistently weak throughout the past year, during which expectations have remained at depths only surpassed around the time of the 2008/09 global financial crisis.

Marginal improvement in outlook from earlier in the year

Across the French private sector, just +16 percent of companies forecast growth of activity over the coming year. While this is up marginally from the net balance of +15 percent in the previous survey conducted in February, and the highest reading for a year, it remains well below the average of +30 percent recorded since data were first collected at the start of 2006.

Confidence regarding new business inflows has dipped in the latest survey amid a soft demand environment. This has led to downwardly-revised expectations for revenue growth.

Employment to remain unchanged

Developments in employment are unpromising, with staffing levels across the private sector overall expected to be stagnant over the coming year. Manufacturers are preparing for deeper cuts in workforce numbers, while service providers anticipate the weakest hiring since April 2009.

Input price inflation is set to moderate, while increases in output charges are set to be minimal in the face of strong competitive pressures. As a result, profits are expected to rise only marginally, giving little scope for additional investment in capital or research & development.

Across Europe as a whole, sentiment has dropped markedly since February, with a notable slump in confidence in Germany and deteriorating outlooks in Italy, Spain and the UK. Companies expect weaker growth of activity, new business and revenues compared with the situation in February.

Employment is set to be largely stagnant, while minimal changes in investment are anticipated.

A fall in business confidence is apparent at the global level. Growth of activity is expected by +37 percent of private sector firms on balance, down from +44 percent in February. However, sentiment remains above that recorded in late-2011. US firms continue to be among the most positive in their growth expectations, although optimism has dipped since the previous outlook survey.

Confidence across the BRIC economies is robust overall, although differences are evident at the national level, with Brazilian and Indian companies notably more bullish than those in China and Russia.

Firms around the world report lower expectations regarding input cost inflation, following recent price
falls for many commodities. Output charges are set to rise at a weaker pace accordingly.

Jack Kennedy, Senior Economist at survey compilers Markit, said: “The mood among French companies remains
subdued in the summer as fragile economic conditions, worries over the European debt crisis and the prospect of higher taxes weigh on confidence. Activity growth is predicted to be lacklustre while employment is set to stagnate.

“That said, France stands alone among the major European economies in posting a slight improvement in sentiment since the previous outlook survey in February. While there is no doubt that the economic climate is difficult, it seems French firms are showing some resilience and retain a measure of confidence in their business strategies for the year ahead, while the change of government may also have helped support sentiment.”

The Global Business Outlook Survey for worldwide manufacturing and services is produced by Markit Economics and is based on a survey of around 11,000 manufacturers and service providers that are asked to give their thoughts on future business conditions. The reports are produced on a tri-annual basis, with data collected in February, June and October. The latest survey was conducted between June 12 and 28.

 

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