French business activity fell unexpectedly this month, pulling back at the fastest rate in over four years in the face of weakening demand and the impact of the 'gilets jaunes' anti-government protests, a new survey has shown.
Data compiler IHS Markit said that its preliminary composite monthly purchasing managers index (PMI) fell to 47.9 points from 48.7 in December, confounding economists' expectations on average for an improvement to 51.0.
The fall brought the index to its lowest point since November 2014 and took it further away from the 50-point line dividing a contraction from an expansion.
'Gilets Jaunes'
Economists had been expecting an improvement, driven by the dominant service sector, after activity was hit in December by rolling protests that saw the worst street violence in decades in the capital during the pre-holiday shopping period.
"There's a lot of companies saying they are continuing to see a disruption from the protests," IHS Markit chief economist Chris Williamson said.
In addition to the protests, uncertainty over Brexit and Europe's economic outlook were weighing on business sentiment, Williamson added.
A breakdown of the data showed that the service sector, where many restaurants, hotels and other businesses are dependent on tourism, continued to suffer in January.
The PMI index for the service sector fell to 47.5 from 49.0 in December, well below economists' average expectation in a Reuters poll for 50.5.
Manufacturing Gains
In contrast, the manufacturing sector saw its index improve to a three-month high of 51.2 from 49.7, beating expectations for a reading of only 49.9.
Nonetheless, manufacturing new orders continued to fall while new business at service providers dropped at the fastest rate since June 2013.
"Firms are wondering what does 2019 hold in terms of growth. It looks like its going to be a tough year. There is a lot of hunkering down, a lot of cost controls and weakening expectations about the year," Williamson said.
He said that if business activity held at January's levels, that implied that the economy could contract 0.1 percent in the first quarter from the previous three months, although he said activity was likely to pick up slightly from next month.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
