France's business climate fort manufacturing witnessed a pronounced decline in July, with the indicator dropping to 95, a level not seen since December 2020 and well below the long-term average of 100. This downturn was mirrored in all market sectors. Wholesale trade fell to 92 from 95 in May due to a fall in past sales and a grim business outlook. The services sector experienced a sharp fall from 101 in June to 95 in July, due to lower-than-expected demand. Retail trade, including vehicle trade and repair, fell from 99 in the previous month to 94, reflective of reduced ordering intentions and an unfavourable business outlook.

Manufacturing faced significant challenges, particularly with a decline in foreign orders, falling from 99 in the previous month to 95 in July. The construction sector's business climate dipped slightly from 100 to 99. Additionally, the employment climate worsened, falling to 96 from 100, driven by anticipated reductions in workforce size, especially in temporary and non-temporary work agencies within the services sector.

Overall, the deteriorating business climate indicates a challenging period ahead for French businesses, requiring adaptive strategies and potential policy support to mitigate adverse impacts. Despite this windfall across these sectors, the July update lifts the French RPI to 9 and the RPI-P to 5 as even weaker data in prior periods rolled off the calculation.

Sentiment in French manufacturing is expected to hold unchanged at 99 in July.

INSEE is France's National Institute of Statistics and Economic Studies. INSEE's business climate indicator aims to summarise the mood of French business leaders. The survey asks questions about output, orders and inventories and expectations for future business. These are synthesised into an overall index of sentiment, adjusted so that the long-run average is 100. The main focus is the manufacturing sector but the survey also provides separate confidence measures for construction, retail trade and services on a monthly basis and for wholesale trade every other month.

If you are looking for clues on French business sentiment, this survey would be a good starting point. The indicator is based on a survey that asks business leaders about their expectations for new orders and their overall impressions of the economy. The results are a diffusion index that reflects the difference between positive and negative responses as a percentage of the total number of answers.