The impact of French services PMIs on the domestic economy

In January 2025, the French services PMI showed a slight slowdown in growth. The French services flash index came in at 48.9, down from 49.3 in the previous month. However, this figure is better than the previous two months’ estimates, reflecting some improvement in economic activity compared to the recession.

What is the PMI?

The PMI is an economic measure based on a survey of business opinions about business conditions in a particular sector. It is based on data collected from companies on output, new orders, input prices, employment and future expectations. The index sometimes gives an indication of economic trends such as expansion or contraction.

The 50 point figure is considered the dividing line between growth and contraction. If the index is above 50, this indicates an expansion in economic activity, while a figure below 50 indicates a contraction in economic activity.

Market Trends in the French Services Sector

At the start of 2025, data shows that the French services sector is still facing some challenges. The activity index in the services sector recorded 48.9, a slight decrease from the previous month’s 49.3. However, this rate indicates a slowdown in the contraction rather than a sharp increase in the decline. Many French companies in this sector reported a decrease in new orders, leading to a slight decline in activity.

While companies in the services sector reported some improvement in market conditions, a large number of them are still suffering from weak domestic and international demand. This is often attributed to persistent inflationary pressures and rising costs, which are hindering growth in the short term.

Inflationary pressures and their impact on the services sector

One of the most significant challenges facing the service sector in France is inflationary pressures. Service sector companies have recorded an increase in input costs, particularly wage costs. Although there have been some declines in raw material costs, companies have not been able to pass these costs on to customers. Despite the continued rise in costs, French companies have reduced the prices of their services for the first time in several years, showing an unprecedented downward trend in prices.

Indications of recovery in the service sector

Despite these challenges, there are some expectations that an improvement may occur in the near future. Some service companies have recorded an increase in customer orders, reflecting a relative improvement in market conditions. These signals could prompt some companies to take new measures to stimulate growth and improve their offerings to customers. Improved external market conditions and increased demand for some services are expected to drive a gradual rise in service activity.

Indications of activity in the French industrial sector

On the other hand, it seems that the French industrial sector is still facing major challenges. Although the manufacturing PMI improved in January 2025, the sector is still contracting, with the manufacturing index at 45.3. This is up from 41.9 in December 2024, but still indicates a decline in industrial activity.

The pressures facing the manufacturing sector include weaker domestic and international demand, which is contributing to lower production and higher inventory levels. Despite some improvements in the manufacturing sector, economic data remains broadly contracting. If companies are able to adapt to changes in domestic and international markets, there could be a gradual improvement in economic growth in the near future.

Employment in various economic sectors

In terms of employment, the PMI data reveals that France has seen a significant decline in jobs in both the industrial and service sectors. The data suggests that companies have reduced their workforce in an attempt to adapt to the difficult economic conditions. In the service sector, some companies have shown slight increases in employment, but these have not been enough to compensate for the losses in other sectors.

Comparing the service sector to the industrial sector

While the French industrial sector is experiencing a significant decline in activity, the service sector is more resilient in dealing with economic challenges. While the manufacturing sector is struggling to cope with inflationary pressures and weak demand, the service sector is still able to adapt to the current situation thanks to the flexibility of its business model and the shift towards digital services.

Prospects for the two sectors

If current conditions persist, the French economy is expected to face continued challenges in 2025, especially in the industrial and service sectors. Inflationary pressures may continue to weigh on production and demand levels. However, there are some indicators that point to the potential for a gradual recovery, especially if companies are able to adapt to market demands and customer needs.

Impact on Monetary Policy and Inflation

Ongoing economic pressures are also impacting monetary policy decisions in France and the Eurozone. These pressures may prompt the European Central Bank to make interest rate decisions to counter persistent inflation. Meanwhile, the French economy is trying to adapt to the difficult economic environment while looking to improve labor markets and steer economic policies towards stabilization.

The performance of the French Purchasing Managers’ Index (PMI) at the beginning of 2025 reflects a state of economic challenges and pressures suffered by the industrial and service sectors.

Related Articles