According to figures published by INSEE, the business climate in France fell in October to 97, down by one point over the month.
This decline is due to a significant drop in business sentiment in industry, with the indicator for the sector losing seven points over the month. Excluding the pandemic, this is the sharpest monthly fall since November 2008. Manufacturers are reporting a sharp fall in past production, production expectations and new orders. New orders are now at their lowest level since the beginning of 2021.
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In addition, manufacturers report an increase in economic uncertainty and an expected fall in the number of people employed. They anticipate a sharp fall in demand over the coming months, and expect much weaker investment over the next year. In the retail sector, business sentiment declined over the month, with past and forecast sales viewed less favourably. In the construction sector, business sentiment remains stable. For all sectors, the employment climate fell, losing two points over the month.
Moreover, the business climate data indicates a rise in inflationary pressures in all sectors, with forecast selling prices rising in October. Inflation is therefore likely to rebound somewhat over the next few months to close to 2% and will probably not remain at the very low level seen in September.
The PMI indices also published today, which fell in both the services and manufacturing sectors, confirm the clear deterioration in France's economic outlook. The survey points to weak demand and the sharpest contraction in new foreign orders since the pandemic.
Analysts expect activity in France to remain very sluggish over the next few quarters. Industrial activity is likely to remain very depressed, and they do not expect foreign demand to pick up strongly. Despite the fall in interest rates, experts say we will probably have to wait until the second half of 2025 to see investment pick up, and business investment is likely to remain very weak.
For 2025 as a whole, the government is still forecasting GDP growth of 1.1%. Given the indicators, the global outlook and the much tighter fiscal policy, experts believe this forecast is too optimistic. Analysts are expecting growth of 0.7% in 2025 after 1.1% in 2024, and the risks surrounding this forecast are tilted to the downside.
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