France’s economic slowdown continued at the end of the first quarter of the year, according to the latest flash Purchasing Managers’ Index (PMI) survey data from HCOB. This decline extended the decline in private sector production to seven consecutive months. Demand for French goods and services weakened again, with further job losses. Business expectations for the coming year were extremely pessimistic, with business confidence hitting its lowest level in nearly five years.
Despite the results highlighting the overall fragility of the French economy, some positive signs emerged in the manufacturing sector, with production declining slightly at the slowest pace since the start of the contraction in June 2022. However, the services sector remains the primary driver of overall economic activity in France.
The March Composite PMI recorded 47.0 points, indicating a moderate contraction in private sector activity. However, the index was up from 45.1 points in February, indicating a slower decline compared to the record high recorded in February, which was the worst in 13 months.
Despite the decline in production in the manufacturing and services sectors, the decline in output in the goods sector slowed markedly compared to February. According to reports, deteriorating conditions in the automotive sector and transportation problems negatively impacted factory output. However, some companies reported a slight improvement in sales and new product launches. Service providers also recorded a slight decline in activity, the second largest decline since January 2024. Reports indicate that economic and geopolitical tensions, as well as a decline in inquiries, contributed to the decline in services production.
Business backlogs fell further at the end of the first quarter.
In March, the total number of new orders received by companies in the private sector fell, a trend that has continued since May 2024. However, the decline was less severe than the previous month, indicating a slower decline in new business receipts in both the manufacturing and services sectors. Regarding external demand, it declined slightly in March, albeit less markedly than in previous periods.
Backlogs of work declined further by the end of the first quarter, extending the current run of depletion to 20 consecutive months. The survey indicated that existing projects were being wound down due to a lack of incoming new business. There was also a strong decline in the volume of outstanding orders overall.
Regarding employment, the survey results showed a decline in private sector payrolls for the fourth consecutive month, the longest streak of job losses since late 2020. However, workforce reductions were limited to the services sector, while manufacturing saw an increase in employment levels for the first time since May 2023.
This decline in employment coincided with a deterioration in French business confidence in March. Firms expected a decline in activity levels over the next 12 months. Market sentiment is at its lowest level in nearly five years. Firms cited domestic and international uncertainty, as well as competitive pressures and weak economic conditions in some major industries such as automotive, construction, and agriculture, as the main reasons for this pessimism. As for prices, March survey data showed a decline in cost pressures, with input prices rising at the slowest pace in three months. Despite this softening in cost pressures, prices for French goods and services rose slightly, largely unchanged from February. The services sector was primarily responsible for price inflation, as manufacturers lowered the prices of their goods.
The French economy is struggling to regain momentum.
The survey results indicate that the French economy is suffering from a persistent slowdown in the private sector. The decline in business confidence and continued weakness in demand point to continued economic challenges in the near term. While the manufacturing sector may see some improvement, the services sector remains weak, presenting an unstable picture for the French economy at present.
Commenting on the flash PMI data, Dr. Tariq Kamal Chowdhury, an economist at Commerzbank Hamburg, said: “The French economy is struggling to regain momentum. Although the French HCOB flash PMI improved in March compared to the previous month, it remains in contraction territory.
The French political landscape, which has negatively impacted market sentiment in recent months, has recently stabilized. The postponed 2025 budget law was passed in February, helping to avoid a credit rating downgrade, but there remains a significant degree of uncertainty regarding future economic policies.” He continued, “Despite the French industry’s struggles, there are some signs of improvement.
The flash manufacturing PMI jumped significantly compared to the previous month, although it still points to a deterioration in operating conditions. Survey respondents cited domestic and international uncertainty, competitive pressures, and weak demand in key sectors such as automotive, construction, and agriculture as the main reasons for the weak outlook. However, hopes for an improvement in activity rose to a nine-month high.”
Regarding the services sector, Dr. Tarek added, “The flash services PMI data showed no sign of abating in March. Although business activity declined slightly compared to the previous month, the rate of decline remained strong. Economic uncertainty, geopolitical tensions, and weak demand have weighed on services sector output. The only reassuring news is that input cost pressures have eased somewhat, while service providers’ pricing power has improved slightly.”
