Julien Manceaux, Research Analyst at ING, notes that in France, the latest EU Commission survey in the service sector showed stabilization in hiring intentions for the next three months in February.
Key Quotes
“This indicator, that had been recovering quickly since the beginning of 2014 (from 6.3 in February last year to 9.3 in February 2016) now shows that job creation in the service sector in the first half of this year may not be accelerating any more. This means that the employment growth recovery is at risk: employment growth has been accelerating in most of 2015, but should still have been below 0.8% a year at the turn of 2016, which is half the growth necessary to see a significant drop in the unemployment rate.
The drop in the unemployed population in January (a significant 27.9k drop on the month, after a total increase of 90k in 2015) can therefore be explained mainly by recent employment measures taken by the Government more than by a strong employment recovery. This should help support consumer confidence and spending in the first quarter: if consumer spending grew by 0.6% MoM in January after a rebound of 1% MoM in December (following the November terrorist attacks), the yearly growth rate of spending has nevertheless been declining from 2.6% in October to only 0.5% in January.
These developments are not completely reassuring for the next step of the recovery process. The French economic recovery is mainly based on domestic demand, as is the case elsewhere in the Eurozone for the time being. If employment growth does not accelerate faster (hiring intentions in the service sector will be known tomorrow through the EU Commission survey), the momentum in consumer confidence and spending could continue to fade away quickly. At the current juncture, we expect private consumption growth to slow down to 1.2% this year after 1.4% in 2015 (yielding a 1.4% GDP growth this year after 1.1% in 2015), but the risks to this outlook are currently clearly tilting to the downside.”
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