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PMI data out of France on Thursday morning shows economic growth in the Eurozone's second-largest country has declined sharply.
According to IHS Markit, their Flash Composite Output Index read at 47.9 and points to "the quickest contraction in French private sector output for over four years".
Markets were expecting a reading of 51, therefore this is a substantial miss on expectations and signals markets are potentially underestimating the scope of the French economic slowdown.
The negative surprise could have implications for the European Central Bank (ECB) who will almost certainly have to signal a more cautious approach when it comes to tightening monetary policy and raising interest rates. On balance this is a negative policy trajectory from the perspective of the Euro.
All eyes will turn to Frankfurt mid-day when the ECB deliver their January policy decision and guidance.
Looking at the causes of the French slowdown, Eliot Kerr, Economist at IHS Markit says, "despite the continuation of ‘gilets jaunes’ protests, it is unclear whether the latest weak performance was caused by the resulting disruption, or whether the anticipated global economic slowdown for 2019 is already beginning to take hold."
The latest decline in French economic activity appears to have been driven by service providers, as firms reported a moderate fall in activity. Moreover, the pace of contraction accelerated compared to December to reach its fastest for nearly five years.
In contrast to the recent trend, manufacturers outperformed their service providing counterparts. Goods producers recorded broadly-unchanged output in the first month of 2019, stabilising after the contraction in December.
New orders fell for the second month in a row during January. The rate of contraction accelerated compared to December, with firms registering a solid reduction overall.