France private sector decline steepens amid political uncertainty

The French private sector suffered a deeper downturn this month, according to a survey by S&P Global on Friday, despite the decline in the manufacturing economy easing.

The Hamburg Commercial Bank flash composite purchasing managers' index declined to 46.8 points in October, from the 48.1 final tally in September. The reading represents an eight-month low and sinks the PMI further below the 50-point neutral mark, suggesting the downturn steepened.

The composite PMI is calculated using a weighted average of the services and manufacturing readings. The flash services PMI fell to 47.1 points in October from 48.5 in September, also setting an eight-month low.

The manufacturing PMI, however, edged up to a two-month high of 48.3 points in October from 48.2 in September.

The manufacturing PMI was in line with FXStreet-cited market consensus, but the services PMI was below expectations of 48.4 points.

"Demand for French goods and services worsened, while firms' expectations for output over the coming 12 months softened and were the weakest since July. Job creation was sustained, however, with companies in both the manufacturing and service sectors adding to their payroll numbers," S&P Global said.

"As for prices, there was a further subsiding of cost pressures as operating expenses rose at the slowest pace in almost five years. Prices charged were lifted after falling in September, albeit only marginally."

Activity in the French private sector was tempered by "weak client demand and subdued domestic economic conditions".

France has been grappling with political turmoil. French Prime Minister Sebastien Lecornu weathered two confidence motions last week Thursday, just days after appointing his new government and making a key political concession to stay in power.

Lecornu, who became prime minister last month, had resigned earlier in October after criticism of his first cabinet, only to be reappointed days later and unveil a reshuffled team in time to submit a draft budget to parliament.

S&P Global said: "The level of incoming new orders received by French firms fell further in October, extending the current sequence of contraction to nearly a year-and-a-half. Moreover, the reduction was stronger than in September. In some instances, panel members linked reduced client spending appetites to a volatile domestic political situation.

"The absence of new business growth prompted French companies to clear backlogs instead. Outstanding order volumes were pulled lower by clearances at services firms, underlying sector data showed, as manufacturers saw the fastest rise in unfinished workloads since May 2022. According to some goods producers, capacity pressures were due to staff shortages and restocking efforts."

French firms are optimistic that business will grow in the 12 months ahead, but morale "softened and remained subdued by historical standards", S&P Global said.

"Additionally, positive sentiment stemmed entirely from the service sector as manufacturers foresee a decrease in their production levels. Where firms were downbeat, they often commented on political instability and expectations of reduced demand in the face of heightened uncertainty."

The flash reading is calculated using 85% of survey responses. The composite PMI survey panel features around 750 firms. The final reading for the manufacturing sector is released on November 3, before the services and composite data on November 5.