France faces higher recession risk as downturn in Germany eases

Bloomberg

Private-sector activity in the euro area’s top two economies shrank in December, but while France faces a greater risk of falling into recession, the downturn underway in Germany is showing signs of easing as inflation cools.
S&P Global’s flash Purchasing Managers Index for France dropped to its lowest level in almost two years, unexpectedly falling to 48 on service-sector weakness. Germany’s PMI, meanwhile, rose to a sixth-month high of 48.9 — more than economists had anticipated, though still below the
50 threshold separating expansion from contraction.
Investors are trying to gauge the extent of the retreat in the 19-nation euro-zone economy, which has been battered by record inflation and an energy crisis following Russia’s invasion of Ukraine. European Central Bank President Christine Lagarde said that there may be a “short-lived and shallow” recession this quarter and next, but promised more interest-rate increases following the latest half-point hike.
“Output across France fell at the quickest pace since February 2021,” said Joe Hayes, a senior economist at S&P Global Market Intelligence. “We’re likely to see French gross domestic product contract in the fourth quarter, which will raise the risk of a technical recession being confirmed in 2023.”
While France registered a second straight month of contraction, manufacturing declined at the slowest pace in seven months and business confidence among goods producers turned positive. What’s more, French statistics agency Insee said that a recession would narrowly be avoided, with growth of 0.1% in the first quarter after a 0.2% contraction in this one.
In Germany, businesses were still pessimistic about the year-ahead outlook for activity, but less so than in November.