INDICES 4 minutes to read

France’s business climate is recovering from Yellow Vest turmoil

Christopher Dembik

Head of Macro Analysis

Summary:  While the latest French macroeconomic print does reveal some improvement, the economy remains under threat from a bevy of domestic and extraneous hazards.


The latest update on the state of France’s business climate was released today. After a sharp decrease in December linked to a more negative European economic momentum and to the Yellow Vest movement, this composite indicator, which compiles the answers of business managers in the main sectors, has slightly improved to 102.1 in January from 101.9 the previous month.

Digging further into data, the business climate has improved in all sectors, except for the construction sector. One good surprise was the recovery of the retail and car industry which was the most impacted by the Yellow Vest unrest during the crucial business year-end period.

The index is still under its long-term average, at 99.4, but is showing a slight upwards movement. These figures are consistent with a stabilisation of the macroeconomic situation after a very complicated end to 2018. However, the economy needs to be ready to face several headwinds: the German economic slowdown, lower global growth and the potential negative impact on household consumption of the implementation of the withholding tax at the end of the month.

In sum, the latest hard and soft data indicate that some sectors are more robust than others, but the French economy lacks the momentum to be able to reach the government's GDP growth goal of 1.7% in 2019. It is more realistic to expect GDP growth to reach, at best, 1.3-1.4%. 
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