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France : Very bad signal on business investment according to the INSEE survey

26.03.2019

• The slight improvement in the business climate index in March must be put in perspective.


• This is only related to the wholesale trade sector, whose indicator rebounded sharply after having fallen significantly in previous months. Business climate index remains stable or virtually stable in the other sectors: manufacturing, retail trade, construction, and services.


• In the manufacturing sector, foreign order books are deteriorating, in line with the latest PMI/Markit survey. The worrying point comes from the sharp decline in order books in the capital goods sector. The overall order books of capital goods plunge in March to return abruptly to its long-term average. This is the case of both global orders and foreign orders. This presages a sharp slowdown in business investment over the next few months.


Conclusion

The slight improvement in the business climate index in March must be put in perspective. This is only related to the rebound in the business climate in wholesale trade. The very worrying point comes from the drop in orders in the capital goods sector. The indicator comes back sharply to its long-run average, presaging a strong slowdown in business investment. This is the result of the sharp slowdown in global trade since last fall following the protectionist measures taken by the US administration. Trade consists mainly of manufactured goods and in a large part of capital goods. This sector is thus confronted with a significant decline in orders. Business leaders are also adopting a wait-and-see attitude due to uncertainty about global growth prospects and fears related to trade tensions and Brexit.
 

Aline Goupil-Raguénès
Economist
Ostrum Asset Management

On 3 April 2018, Natixis Asset Management became Ostrum Asset Management.