The French economy continues to contract at the start of the fourth quarter, with the HCOB Flash France composite output index recording 47.3, compared to 48.6 in September. This is the lowest level in nine months. In the services sector, the business activity index recorded 48.3, down from 49.6 in September, a seven-month low. The industrial output index also fell to 42.5, down from 44.0 in September, also a nine-month low.
Data collected from October 10 to 22 h` The French private sector economy recorded a further deterioration in October, according to the latest HCOB PMI® survey data, with business activity contracting at the fastest rate since January. As was also the case in September, both manufacturers and service providers reported a decline in output throughout the month.
Constraining activity was a sharp and accelerating decline in new order flows. Total new business entries fell at the fastest pace since the start of the year, with underlying data pointing to a significant drop in demand from export markets. In fact, sales to non-domestic customers fell at the joint-fastest rate since May 2020 (matching what was seen in October 2023). The HCOB flash survey also showed French business confidence deteriorating, with growth expectations falling to an 11-month low.
Meanwhile, cost pressures remained benign, with input price inflation slowing to its weakest in less than four years. Output prices rose modestly after remaining unchanged in September. The headline HCOB Flash France Composite PMI fell below the 50.0 threshold for the second month running in October, pointing to a further contraction in private sector business activity across the eurozone’s second-largest economy. At 47.3, the headline index compared with 48.6 in September and thus its lowest level since the start of 2024.
Pending orders fell in October
Manufacturers recorded a much faster decline than their service sector counterparts, and this trend was also evident in the new orders data. For the French private sector as a whole, new business entries fell at the fastest rate since December last year. Some panellists reported hesitation among customers to place orders.
Non-domestic markets were a more severe drag on sales performance in October, as evidenced by the accelerating decline in new export business. In fact, the decline in new orders from abroad was the fastest since May 2020 (equivalent to October 2023). The accelerating decline in new business pushed French companies to make further progress on their backlog. For the 15th consecutive month, outstanding orders fell in October.
The attrition rate in unfinished work was generally strong. The absence of capacity pressures led to a decline in private sector workforce numbers at the start of the fourth quarter. While the decline in employment was only marginal, it was the most pronounced since November 2020. This was also the first time in nearly four years that job cuts were recorded in both manufacturing and services.
The end of fixed-term contracts was frequently cited, although some companies in the goods-producing sector indicated the implementation of part-time working practices. , The headcount cuts came amid a further deterioration in business confidence. Business growth expectations fell markedly to an 11-month low at the start of the fourth quarter. Some panelists expect weak demand to persist and have therefore cut their output forecasts over the coming year. The outlook was particularly pessimistic in the manufacturing sector, where companies were at their worst since May 2020.
Fall in outstanding orders in October weighs on French private sector
The French private sector recorded a significant decline in outstanding orders in October. New orders fell faster in the industrial sector than in the services sector. Demand for products and services fell sharply, with new business entries falling at the fastest rate since last December. Some manufacturers pointed to customer reluctance to place orders, which exacerbated the situation.
Non-domestic markets were more affected, with new export orders falling at the fastest rate since May 2020. This decline reflects a decline in new orders from abroad, which represents a major challenge for the French economy. French companies were directly affected by this decline, prompting them to reduce their arrears. For the 15th consecutive year, outstanding orders fell in October, with a strong depletion of unfinished work.
The absence of capacity pressures led to a reduction in the private sector workforce, with the country seeing a marginal decline in employment. However, this decline was the most pronounced since November 2020, with job cuts recorded across both the industrial and services sectors. Fixed-term contracts were terminated, while some companies resorted to implementing part-time working practices. The changes come amid a further deterioration in business confidence, with growth forecasts falling to an 11-month low.
Some analysts expect weak demand to persist, leading to lowered output forecasts for next year. The situation is more optimistic in the services sector than in manufacturing, with industrial firms in their worst shape since May 2020. Overall, this situation reflects significant challenges facing the French private sector, calling for urgent strategies to adapt to changing market conditions and restore confidence.
Mixed outlook: Short-term
“The French services sector continues to face challenging conditions in October. “The preliminary HCOB PMI remains in contractionary territory at 48.3, indicating continued weakness in services activity. Despite this sluggish performance, input prices have risen, maintaining pressure on companies’ costs. Mixed outlook: In the short-term, conditions are expected to worsen as both domestic and international demand remain weak, and employment levels decline. However, there is a glimmer of hope as business expectations for the next 12 months remain upbeat, suggesting a longer-term recovery in the sector.”