The French economy started 2025 with a softer contraction in private sector activity, as reflected in the flash composite PMI, which rose to 48.3, a four-month high. While private sector output and new business volumes declined for the fifth consecutive month, the pace of reduction eased, driven by improved market conditions and client interest. Manufacturing outperformed services, with the manufacturing PMI climbing to 45.3, its highest in seven months, indicating a milder production decline. Conversely, services faced a quicker decline, with its PMI at 48.9, a two-month low.

Business confidence weakened, with firms expressing neutral expectations for the year, citing political uncertainty and weaker sales. Employment contracted at its fastest rate since October 2020, with job cuts primarily due to non-renewal of temporary contracts. Inflationary pressures intensified as input costs, especially in services, rose sharply due to higher wages. However, firms reduced selling prices, marking the first decline since early 2021, attributed to competition and lower input costs.

Despite ongoing challenges, slower declines in new orders and improved overseas interest hint at potential stabilisation. The subdued optimism and ongoing structural pressures, however, highlight the fragile state of the French economy entering 2025, leaving the RPI at 4 and the RPI-P at 5. This means that economic activities are generally within the market consensus of the French economy.

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.