French business activity experienced a contraction in October, according to the latest HCOB Flash Composite PMI Output Index, produced by S&P Global and Hamburg Commercial Bank.
The Index fell to 46.8 in October, down from 48.1 in September, marking the fourteenth consecutive month of declining business activity in France and the fastest rate of contraction since February.
Demand for French goods and services declined, with business expectations for the coming 12 months standing at their weakest level since July, the data showed.
On the positive side, job creation was sustained, with manufacturing and service sector firms both adding to their payroll numbers, while there was also a subsiding of cost pressures, as operating expenses rose at the slowest pace in nearly five years.
‘Subdued trend’
“The subdued trend in France’s private sector persists,” commented Jonas Feldhusen, junior economist at Hamburg Commercial Bank. “The Flash Composite PMI for October fell to 46.8, indicating a continued and stronger contraction in overall economic activity. Output in both manufacturing and services is declining, pointing to broad-based weakness. Our in-house HCOB nowcasting model predicts zero growth for the third quarter.
“While French firms maintain a fundamentally positive outlook, sentiment deteriorated. This is largely attributable to the weak global economic environment and domestic political uncertainty. The forward-looking index for business expectations has worsened further from an already low level, and the order situation remains lacklustre.
“Although Prime Minister Sébastien Lecornu gained short-term political leeway for budget negotiations by suspending the pension reform, the overall economic and political climate remains tense. This is likely to weigh on consumer spending and investment activity.”
Business activity index
The business activity index for the French services sector stood at 47.1 in October, down from 48.5 in September, and at an eight-month low.
In manufacturing, the output index was at 45.3, down from 48.5 the previous month, and also at an eight-month low. The broader manufacturing index increased slightly, however, to 48.3 (up from 48.2), indicating a modest improvement in some aspects of the manufacturing sector.
According to the index, weakening client demand and subdued domestic economic conditions were among the factors limiting activity. Incoming new orders saw a further decline, continuing a sequence of contraction that has lasted nearly eighteen months. Foreign orders also fell, though the drop was less pronounced than in September.
“Conditions in the manufacturing sector remain fragile,” Feldhusen added. “Declines in production and new orders suggest a prolonged period of weakness. In an effort to boost sales, manufacturers adjusted prices downwards, as output prices fell for the second consecutive month. However, it is worth noting that the sub-index for employment remains above the growth threshold in both sectors – a sign of underlying labour market resilience.” Read more here.
