The HCOB France Composite PMI fell to 44.5 in February 2025, marking the lowest reading in over a year, compared to January’s 47.6 and significantly missing market forecasts of 48, according to flash estimates.
French private sector activity falls sharply
The latest data pointed to the sixth consecutive month of contraction in the country’s private sector, and at a notably solid pace. This downturn was primarily driven by the services sector, which contracted sharply to 44.5 from 48.2, the steepest decline in 17 months. Meanwhile, manufacturing showed slight improvement but remained deeply entrenched in negative territory at 45.5, up marginally from 45 in January, suggesting that while some manufacturing activity has stabilized, it is far from fully recovering.
Services contributed to overall decline
The steep decline in the services sector was a major factor behind the overall contraction, with businesses across several industries citing reduced consumer demand, ongoing cost pressures, and political uncertainties as key challenges. Manufacturing also struggled with weakening demand, particularly for French goods, leading to the sharpest drop in private sector new orders in nearly five years. The weakness in domestic demand was compounded by a decline in exports, which fell at a solid pace, although at the weakest rate in five months, signaling some stabilization in overseas demand despite the broader challenges.
Steepest job cuts since August 2020
With demand faltering, French companies were forced to reduce their workforces, leading to the steepest job cuts since August 2020. The reduction in staffing was largely driven by falling workloads, particularly in the services sector, which is more sensitive to shifts in consumer sentiment and spending. Despite some improvement in manufacturing, overall employment levels across the private sector were negatively affected by this trend.
On the price front, cost pressures intensified as input prices rose at the fastest pace since last August, reflecting higher raw material costs and increased energy prices. However, output prices rose only slightly, with many companies reluctant to pass on the full extent of cost increases to customers due to weakening demand. This limited ability to increase prices amid rising costs contributed to margin compression for many businesses.
French companies show a neutral outlook
Looking ahead, French companies showed a neutral outlook, with manufacturing showing some cautious optimism for a recovery, albeit tempered by ongoing challenges. The service sector outlook, however, remained subdued, reflecting ongoing uncertainty and lower consumer confidence. Overall, while there are signs of stabilization in certain areas, the broader picture for France remains one of contraction, with economic pressures likely to persist in the short term. This presents a significant challenge for policymakers, particularly as France navigates the complexities of weaker domestic demand, rising costs, and a muted global trade environment.
