France: Corporate debt bromance

5 min

Business confidence faltered in April, particularly in the manufacturing sector where it landed at 109 points after skyrocketing to 114 in January (the best level since 2001). The capacity utilization rate landed as well, at 85.3% in April, down from 85.8% in January. Overall, the main explanation was lagging demand as consumption did not follow output acceleration in H2 2017. As a result, corporates decreased their output in Q1, after an increase in inventories last year. This phenomenon was perva¬sive in the automotive sector in Q1. But, that was not the only game in town. In 2017, corporates’ financing needs rose to -3.1% of GDP, higher than the government’s financing needs (-2.8% of GDP) for the first time since 1983. In Q1, corporates still borrowed the way they borrow and their debt reached 72% of GDP (EH estimate), a new high. This has already had some consequences. Despite a lower number of total business insolvencies in Q1 (-8% y/y), major insolvencies (corporates with turno¬ver above EUR50mn) are on the rise: we registered 25 cases during the last 12 months, with a total turnover of EUR 4.1 bn (even higher than in 2015, when total insolvencies reached their all-time high).