The France puzzle: Markit Vs Insee

By Hugh Carnegy in Paris

Update: Since we published this post, Chris Williamson, chief economist at Markit, has been in touch to say there is no significant divergence with Insee. There has been a lot of comment on this among economists in recent months so his take is important. Thanks to him for the contribution added at the bottom of the post.

Trying to work out exactly what is going on in France’s economy? Recently there has been a marked divergence between indicators from Markit and those from Insee, France’s statistics institute, with the former a good deal more gloomy than the latter.

This continues to be the case – but at least this month there is a bit of convergence, with Insee indicators level-pegging compared with December, while Markit’s figures show a three-month high.





President Francois Hollande’s socialist government, embarked on a new pro-business policy track, is hoping against hope that France’s so-far lacklustre recovery will now pick up pace, producing more than the 1 per cent growth forecast for this year and opening up a bit of room for manoeuvre on tax cuts.

The latest Insee survey out this morning, at the same time as the Markit PMIs, shows a stable picture for both industry and services in January, with the “turning point indicator” for both signalling “a favourable economic outlook”. On Insee’s measure, the composite business climate indicator for industry stood at 100 in January – bang on the long-term average, as it was in December. It stood at 98 in October and November.

Insee commented: “The balance on general production expectations, which represents business managers’ opinion on French industry as a whole, has improved again and has reached a level above its long-term average.”

In services, the indicator remained below the long-term average at 91, but was also unchanged from December. “Business managers report that their activity has declined over the last few months, but their business expectations for the coming months are a little less pessimistic than in December,” said Insee.

All this compares with Markit’s composite ‘flash’ output PMI reading of 48.5 for France in January, below the 50 per cent mark that separates expansion from contraction – but the highest in three months. Markit’s manufacturing output index rose to 48.2 in January, up three points from December, while the services index was up just under one point to 48.6.

Put it all together and the conclusion seems to be that there is some flickering revival in French business activity, perhaps not as bad a situation as some have predicted. But it remains, as Mr Hollande put it this week, “too feeble to create jobs”. Hence his new-found push to inject more urgency into reforms.

This is Williamson’s take:

The PMI measures how companies output has changed compared to the prior month. Insee publish similar indices which, for manufacturing (the recent production trend series) fell from +11.2 in December to -0.2 in January. The index of recent activity in the service sector meanwhile fell from -3.4 in December to -7.3 in January. A GDP weighted Insee index (comparable to the composite PMI) consequently fell from -0.6 to -6.1.

Importantly, the Insee survey lags the PMI by around 2 months. The conclusion is that both surveys are showing a remarkably similar picture, with the private sector economy having shown signs of stabilising last autumn but more recently showing signs of renewed weakness.