Yellow vest protests plunge French business activity into contraction

PARIS: French business activity plunged unexpectedly into contraction this month, retreating at the fastest pace in over four years in the face of violent anti-government protests, a monthly survey showed on Friday.

Data compiler IHS Markit said that its composite purchasing mangers index dropped to 49.3 points from 54.2 in November, sliding below the 50-point threshold between contraction and expansion for the first time since June 2016.

The reading, the lowest since November 2014, also fell far short of economists’ average expectation for 54.0 in a Reuters poll.

Companies have seen business drop after nearly a month of nationwide demonstrations that have triggered the most violent street protests seen in decades.

The “yellow vest” movement, named after the high-vis vests French motorists must keep in their cars, started as a rebellion against since-scrapped fuel tax hikes into a broader movement against the high cost of living.

“The protests have been a major factor for growth to slow from what was a very resilient picture before,” IHS Markit chief business economist Chris Williamson said, noting that the tourism and leisure sectors were hit particularly hard.

He added that France was on course for growth of only 0.2 percent in the final quarter of the year, in line with the central bank’s estimate and down from 0.4 percent the previous quarter.

Neither the services nor the manufacturing sectors were spared drops into contraction territory, and the dominant service sector saw activity reverse particularly sharply.

The sector saw one of its biggest monthly drops on record with its activity index plunging to 49.6 from 55.1 in November, well below economists’ average expectation for 54.8.

The index for the smaller manufacturing sector slipped to 49.7 from 50.8, against expectations for the index to edge down to 50.7.

Companies saw client demand weaken across the board with new orders the lowest since August 2016 in manufacturing and new business for services providers the weakest since February of that year.

IHS Markit said that in contrast to services, manufacturers more often blamed weakness in the automotive sector for slumping output than the protests.

However, manufacturers reported a deterioration in delivery times as protesters manned road blocks on and off across the country, snarling up their supply chains.