France IP: Persistent manufacturing weakness implies a moderate but fragile recovery

Industrial production edged up 0.1% m/m in September, above the consensus expectations, stabilising after a volatile summer. The typically volatile components of mining, electricity, gas and water output rose by 0.7% m/m while manufacturing output was flat.

Underlying manufacturing momentum was weaker than it seemed. Coke and refined petroleum output jumped 22.5% m/m in September (contrib.: 0.3pp), owing to a return to full capacity for some refineries according to the INSEE press release - the main reason for the upside surprise versus the forecast. This rebound offset other declines in motor vehicles (contrib. -0.1pp), and other manufactured products (contrib. -0.3pp). The only positive contributions within the manufacturing subcomponent came from computers, and electrical equipment (+0.2pp). 

After a turbulent summer, the IP release confirms that France is on a moderate but still fragile recovery path. Over Q3, industrial production rose 0.4% q/q from -0.5% q/q in Q2, suggesting a return to overall GDP growth in Q3 (after 0.0% q/q in Q2), consistent with goods' consumption data and surveys. In the meantime, manufacturing output only improved from -0.2% q/q in Q2 to +0.1% q/q in Q3 15. At the first Q3 GDP release (this Friday), French GDP is expected to rise by 0.3% q/q. 

The IP carry-over for Q4 is at 0.6% q/q (from 0.4% q/q in Q3), which points to possible further improvement, as also suggested by surveys released so far. INSEE, PMIs and the Banque of France business confidence headline all edged up in October. According to the Banque of France October synthetic activity survey, French GDP should accelerate to 0.4% q/q in Q4; a similar forecast to that of INSEE. 

"Our forecast is slightly lower at 0.3% q/q. Underlying manufacturing weakness suggests balanced risks to our forecast", notes Barclays.