France manufacturing contracts in May as supply chain hit intensifies

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The April growth, as expected, was short-lived as we see an unwinding to the frontrunning of stock in May. While the revised figures are better than initial estimates, it still points to a marginal contraction in business activity. Of note, there were fresh declines in production, new orders, purchasing volumes and stocks as
the tailwinds from client stockpiling dissipated.

Meanwhile,
accelerated increases in both input costs and output charges
pointed to intensifying inflationary pressures across France’s industrial sector.

Looking at the details, demand conditions were dealt a major setback with the sub-index for new orders
wiping out all of the gains made in April. Supply chain pressures were also more intense as vendor delivery
times lengthened to the greatest extent since January 2023. Besides that, panellists also noted that shortages of raw materials and transportation, high fuel
costs and front-loaded ordering squeezed supplier capacity further on the month.

On the inflation front, the rate of input cost inflation jumped to a four-year high. Adding to that is French manufacturers raising their own prices charged in May,
and to the greatest degree in 40 months. Trouble, trouble.

S&P Global notes that:

“As expected, April’s expansion was fleeting. Frontloaded ordering has faded, replaced by falling new
business, production cutbacks and inventory reductions.
Supply chains are still adjusting to the volatility induced
by the war in the Middle East and ensuing energyprice shock. For example, more French manufacturers
experienced delivery issues and input price rises
than in April – pressures that could play out as higher
goods prices and supply issues across the economy
more broadly over the coming months. Unfortunately,
the policy levers that can meaningfully address the
problems created by an external shock on this scale are
limited for indebted nations like France.”

This article was written by Justin Low at investinglive.com.