Did Macron’s Snap Call Snap Growth?

Is political uncertainty hurting business? Some concluded the answer is yes, after viewing the latest purchasing managers’ indexes (PMIs), with some French firms blaming recently called snap elections for June’s dip in activity. Perhaps that is the case. But in our view, what matters more is PMIs’ broader trend—and June data don’t deviate much from it.

As Exhibit 1 shows, Western Europe’s PMIs mostly weakened from May to June. (Readings above 50 imply expansion; below 50 contraction.)

Exhibit 1: Recent PMIs for Major Western Nations

Source: FactSet, as of 6/21/2024.

France’s PMIs drew the most attention, as some respondents linked lower business activity to the surprising snap vote—a news story eclipsing all others in Europe lately. Sounds intuitive, though keep a few things in mind. One, these monthly surveys may provide a timely snapshot of recent business conditions, but they indicate growth’s (or contraction’s) breadth only—not the magnitude. Hence, readings just under 50 can obscure growth, if the minority that grew outpace the majority that contracted.

As for political uncertainty’s impact, survey respondents are relaying what they are hearing from customers, and it wouldn’t surprise if some have adopted a “wait-and-see” approach. A company may think it prudent to delay spending for a few weeks in exchange for some clarity on politics. Perhaps they are emotionally reacting to feared outcomes—business leaders are people, too. But we reckon “political uncertainty” can also serve as a convenient scapegoat, giving companies an external boogeyman to blame. Corporate America has cited tariffs and a strong dollar to manage earnings expectations; UK businesses have done the same with Brexit.

“Political uncertainty” also tends to be a commonly cited headwind whenever an election comes up. Like their French peers, some UK firms mentioned July 4’s upcoming vote weighed on their plans, and a few US manufacturers reported some November election-related uncertainty, too. Granted, there was more of a surprise factor with France’s election, not to mention less clarity on what the next government will look like (e.g., in the case of the UK, the longstanding general expectation is for a Labour win—and party leader Keir Starmer is a known quantity). But in our view, the blame in France seems like a function of survey timing above all else. S&P Global gathered responses from June 12 – 19, when the election news was fresh and fearful headlines were near-ubiquitous.

But perhaps most importantly, while the political angle is new, France’s June weakness isn’t. The readings are in line with their longer-running trends. Consider, France, Germany and the eurozone composite PMIs have spent much of the past 12 months in contraction. (Exhibit 2)

Exhibit 2: Eurozone, Germany and France’s Composite PMI Since June 2023

Source: FactSet, as of 6/21/2024.

We don’t dismiss how political uncertainty can deter action—if businesses are nervous about what lies ahead, they may be less keen to invest. But when placed against a longer-term backdrop, France’s snap vote didn’t appear to roil business activity. Rather, France’s June flash PMI is in line with mostly sub-50 readings over the past 12 months.

Just as eurozone PMIs extended their weak streak, other areas’ strength continued. The US composite PMI registered a 26-month high in June, as American growth has been powering the global economy for a while, pulling along other regions. Yes, the global economy features pockets of strength and weakness, but that isn’t abnormal—and global stocks can do just fine in this kind of economic environment.