The French economy continues to face contractionary challenges at the start of the fourth quarter, with the latest HCOB PMI® survey data showing a further deterioration in private sector performance in October. Business activity fell at the fastest rate since January, with both manufacturers and service providers recording a decline in output over the month.
The data indicated that the main reason for the decline was a sharp and accelerating decline in new order flows, with total new business entries falling at the fastest rate since the start of the year. Demand from export markets also fell markedly, with sales to non-domestic customers at their lowest since May 2020, reflecting a general weakness in business activity.
Furthermore, the HCOB’s spot survey showed a decline in French business confidence, with growth expectations falling to an 11-month low. However, cost pressures remained subdued, with input price inflation falling to a four-year low. Output prices rose modestly after remaining unchanged in September. The headline HCOB Flash France Composite PMI fell below 50.0 for the second month in a row in October.
indicating continued contraction in private sector activity levels.
with the index at 48.3 compared to 49.6 in September, its lowest level since the beginning of 2024.
Respondents to the survey attributed the marked decline in output to weak demand in both sectors.
with manufacturers being the hardest hit compared to their service sector counterparts, a trend also evident in the new orders data. Some panellists reported that customers were reluctant to place orders, adding to the challenges facing the French economy in the coming period.
A sharp decline in French exports weighs on the labor market and the services sector
External markets had a significant impact on sales performance in October.
with data showing a significant decline in new export business. In fact, this was the fastest decline since May 2020, reflecting a decline in new orders from abroad in October 2023.
This accelerated decline prompted French companies to accelerate their efforts to address their backlog.
with outstanding orders falling for the 15th consecutive month.
while a strong attrition rate was recorded in unfinished work. In the absence of capacity pressures, the private sector saw a decline in workforce numbers at the start of the fourth quarter. Although this decline was marginal.
it was the most pronounced since November 2020, with job cuts recorded across both the manufacturing and services sectors for the first time in nearly four years.
with fixed-term contracts being terminated in several companies.
as well as part-time working practices being introduced in some production sectors.
These staff cuts came amid a further deterioration in business confidence.
with companies’ growth expectations falling markedly to an 11-month low at the start of the fourth quarter. Some panelists have lowered their output forecasts for the coming year as demand remains weak. The pessimism was particularly evident in the manufacturing sector, where companies were at their most pessimistic since May 2020. As for prices, the latest HCOB survey data revealed a further easing of cost pressures across France.
with input price inflation falling to a 47-month low at the start of the fourth quarter, well below the series average. Despite selling prices remaining unchanged in September, French companies raised their prices in October, but only by a modest rate.
Economic downturn in France: Warnings of a decline in services and industry activity
Dr. Tariq Kamal Chowdhury, an economist at Hamburg Commercial Bank, pointed out that the economic downturn in France continued at the beginning of the fourth quarter of the year. The flash PMI for October recorded 47.3 points, indicating a clear contraction in the economy. Despite the early elections held four months ago, uncertainty about the economic outlook remains, and Prime Minister Michel Barnier suffers from a fragile political situation.
in addition to the failure to resolve the 2025 budget, which increases the lack of confidence in business circles.
Hamburg Commercial Bank expects slight growth at the beginning of the fourth quarter.
but urgent action is needed from the government in Paris to stabilize the economy and address financial imbalances.
As for the services sector, it is facing difficult conditions in October.
as the HCOB Flash PMI settled in contractionary territory at 48.3 points, reflecting continued weakness in service activity. Despite the slow performance, input prices rose, increasing pressure on companies’ costs. The outlook is mixed.
with conditions expected to worsen in the near term due to weak domestic and international demand and low employment levels. However, business expectations for the next 12 months remain upbeat, suggesting that a long-term recovery is possible in the sector.
As for the manufacturing sector, the October HCOB Flash Manufacturing PMI remained in contractionary territory at 44.5, confirming a deepening slowdown. However, there is a glimmer of hope in the form of input prices beginning to fall.
despite continued contraction in demand. The outlook remains bleak.
with domestic and international order volumes showing no signs of recovery, raising concerns about a weaker output outlook in the next 12 months. The industry could benefit from greater political stability in Paris and a boost in targeted investment to support the much-needed recovery.
