France’s June INSEE business sentiment to stay at 102; euro area flash PMIs likely to have dropped slightly

Recently, France’s INSEE business climate indicators have been resilient and have tinted a significantly stronger picture of the French economy than the PMI counterparts. In June, France’s manufacturing confidence might have dropped marginally. This might bring it closer to the manufacturing PMI as strike action might be a drag on the result, said Societe Generale in a research report.

But the overall business climate indicator is expected to remain strong at 102 in June. Building construction and retail trade sectors’ numbers are likely to be better as both the sectors have experienced strong momentum recently. At 102, the business climate indicator would be in line with the economic growth of about 0.4 percent in the second quarter of 2016.

Meanwhile, the euro area flash PMIs are due to be released on Thursday. However, the flash PMIs are unlikely to record any major swings against the backdrop of the Brexit referendum, according to Societe Generale. Domestic developments are expected to mainly determine business sentiment. Both manufacturing and services flash PMIs might have dropped slightly in June.

Germany is likely to post slightly weaker numbers, while Italy is unlikely to have rebounded largely after disappointing numbers recorded in May. Meanwhile, confidence in Spain is likely to deteriorate further because of political uncertainty. The impact of this is likely to be slightly countered by France’s result that is expected to show an improvement in its manufacturing PMI. The index is likely to have improved to 48.9.

“If our forecast for the euro area is correct, the composite number of 52.9 would be consistent with GDP growth of just below 0.4% in Q2, slightly above our forecast”, noted Societe Generale.