In June, France's economic activity showed signs of deceleration, as indicated by the latest flash composite PMI output index, which fell to 48.2 from May's 48.9, marking a four-month low. This decline underscores a continued contraction in both services and manufacturing sectors.

The services PMI business activity index slipped to 48.8 from 49.3 in May, a three-month low, reflecting subdued activity and demand in the service sector. This downturn aligns with the broader trend of declining confidence and activity levels reported earlier in the services sector.

Manufacturing painted an even grimmer picture. The manufacturing PMI output index dropped to 45.3 from 46.4 in May, reaching a five-month low. This steep decline suggests a significant contraction in manufacturing output and highlights persistent challenges in the sector.

The weakening PMI readings signal a broader economic softening, compounding the concerns raised by the deteriorating business and employment climate indicators. Moreover, French businesses are becoming increasingly apprehensive, particularly in light of the uncertainty surrounding the upcoming snap elections. Anecdotal evidence suggests that certain businesses are experiencing lower activity levels, attributing this slowdown to the legislative elections to be held in late June and early July. This apprehension is evident in the service sector, where new orders have declined for the first time in three months.

Additionally, output expectations for the next twelve months have weakened, not only due to electoral uncertainties but also heightened geopolitical risks. This dual impact is causing businesses to adopt a more cautious approach, which is causing them to postpone investments and expansion plans. The overall sentiment suggests a challenging economic environment ahead, necessitating strategic adjustments by businesses and potential policy interventions to mitigate these risks.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around ten days ahead of the final report and are typically based upon around 85 percent of the full survey sample. Results covering a range of variables including manufacturing output, employment, new orders, backlogs and prices are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The data are produced by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.