France's Private Sector Slips Further: PMI Data Highlights Deepening Challenges

The French private sector’s contraction accelerated in April 2025, with the latest Purchasing Managers’ Index (PMI) report revealing a worrying trend. While manufacturing showed a glimmer of resilience, the services sector’s sharp decline dragged the broader economy deeper into its eighth consecutive month of contraction. Investors now face a critical question: Is France’s downturn bottoming out, or are deeper structural issues at play?

The composite PMI for services and manufacturing fell to 47.3 in April, down from 48.0 in March and undershooting forecasts. This marks the lowest reading since October 2023, underscoring persistent weakness in domestic demand and global trade headwinds. Let’s dissect the data to assess the risks and opportunities for investors.

Services Sector: The Weakest Link

The services PMI plummeted to 46.8 in April, its lowest level in two months, as new business fell at the steepest rate since November 2020. Industries such as construction and transport were hit hardest, with firms citing reduced client activity. Domestic demand is crumbling, but exports offered a sliver of hope: services export sales saw the shallowest decline since August 2022.

The services contraction is now the primary drag on growth. With business confidence hitting a near five-year low, investors should brace for prolonged weakness in sectors like retail, hospitality, and professional services.

Manufacturing: A Fragile Bright Spot

Manufacturing output surprised to the upside, rising to 50.3 in April—the highest since early 2020—but the sector’s overall PMI dipped to 48.2, signaling contraction. New orders fell sharply, particularly from key markets like the U.S. and Germany, and input costs saw their slowest rise in 2025. However, firms cut selling prices for the first time in three months to attract buyers, a sign of weak pricing power.

While manufacturing’s output resilience hints at supply-side stability, demand remains the critical hurdle. Slowing global trade and trade policy uncertainty—such as U.S. tariff changes—could prolong this imbalance.

Composite Picture: A Fragile Economy

The composite PMI’s drop to 47.3 reflects a widening gap between services’ struggles and manufacturing’s modest gains. The data also highlight a near five-year low in business optimism, with firms citing deteriorating order books and weaker client demand.

Notably, manufacturing backlogs stabilized for the first time in over two years, suggesting production has finally aligned with reduced demand. However, services backlogs rose slightly, indicating unresolved pressure in sectors like healthcare and logistics.

Economist Perspective: "Demand is the Key Constraint"

Jonas Feldhusen of Hamburg Commercial Bank noted that while the contraction was “not as dire as anticipated,” the order situation had worsened, with future business expectations falling below growth thresholds. Domestic demand weakness, he argued, is the core issue, compounded by trade uncertainties.

The report also emphasized that input cost inflation—though easing—remains elevated, squeezing margins. Firms’ reliance on discounts to boost sales could further strain profitability unless demand rebounds.

Implications for Investors

1. Sector Rotations: Avoid services-heavy stocks (e.g., retail, travel) and favor defensive sectors like utilities or healthcare, which may weather the contraction better.
2. Export-Exposed Firms: Manufacturing companies reliant on U.S. or German markets face headwinds. Monitor trade policy developments closely.
3. Bond Market Play: French government bonds (OATs) could see demand as growth fears persist, but inflation risks remain a wildcard.

Conclusion

France’s private sector contraction in April 2025 is a stark reminder of its economic fragility. The services sector’s sharp downturn, driven by domestic demand collapse, is outpacing manufacturing’s slight gains. With business optimism at a near five-year low and order books deteriorating, the path to recovery remains fraught.

Investors should heed these signals:
- 8 consecutive months of contraction in the composite PMI suggest underlying structural issues, not just cyclical headwinds.
- 46.8 services PMI: The lowest since late 2023, reflecting consumer and business spending fatigue.
- Manufacturing’s output resilience (50.3) offers a glimmer of hope, but new orders and exports remain vulnerable.

Until demand stabilizes—domestically and internationally—France’s economy will remain in a precarious position. For now, caution reigns supreme.

Data sources: S&P Global PMI reports, HCOB Flash France PMI survey.