France: Leading indicator reaches a 70-month high - ING

Julien Manceaux, Senior Economist at ING, notes that in France, the main economic indicator reached a 70-month high in February, indicating that growth could accelerate towards 1.5% at mid-year.

Key Quotes

“If confirmed, it should also lead to a recovery of employment growth in industry, where INSEE figures showed this morning that employment had contracted once more in 4Q16.”

“In France, in February the main indicator for GDP growth reached its highest level since 2011, continuing the positive trend it started in November after several years of hesitant moves. At 104, the index now indicates that YoY GDP growth could accelerate from 1.2% currently towards 1.5% by the middle of the year. On the back of this, the BoF revised upwards its quarterly growth forecast at 0.4% QoQ in 1Q17. This is in line with our expectation of accelerating growth in 2017. We expect GDP growth to rise from 1.1% in 2016 to 1.3% on average in 2017.”

“If the upward move in business confidence shown by the BoF indicator started in the service sector, confidence has recently been on the rise in industry as well. Although it will have to be confirmed by the industrial production figures for January to be published tomorrow , it can be seen through other surveys that order books have been recovering in the manufacturing industry and the building sector. This is good news for employment growth. This morning, INSEE figures also showed that employment growth reached 1.2% YoY in the last quarter of the year. This remains weak and insufficient to ensure a prolonged decline in unemployment. However, the outlook looks brighter for the industrial and building sector where employment declined by 0.% and 0.2% respectively QoQ in 4Q16.”

“France’s next President will therefore see a mix of better confidence and slightly better employment growth at the start of his mandate. The recovery remains however at an early stage and the French economy needs the support of structural reforms to really see growth accelerate. On that front, the most pro-reform agenda looks more popular today: the latest poll published last night by Harris Interactive showed that for the first time Macron was leading in the polls (26%) in front of Mrs Le Pen (25%) while Fillon is coming back at 19%, his level of one month ago. There are still 45 days before the vote, which will continue to bring surprises.”