February 2025 marked a sharp decline in French economic activity, with the composite PMI dropping to 44.5, its lowest in 17 months. The contraction extended the six-month downturn, driven by weak demand and a worsening private services sector. Services bore the brunt of the decline, with the services PMI falling to 44.5a steep drop from January's 48.2. In contrast, the manufacturing sector showed slight resilience, with the manufacturing PMI rising to 45.5, a nine-month high, though still in contraction.

New orders fell at one of the sharpest rates in five years, particularly in domestic markets, while the export business declined more slowly. Businesses struggled with rising input costs, yet competitive pressures hindered their ability to raise prices significantly.

Amid weakening sales, firms responded by cutting jobs at the fastest pace since August 2020, primarily through non-renewal of contracts and voluntary departures. With dwindling backlogs and low future confidence, companies remain cautious.

While manufacturing continues its slow upward trajectory, albeit below the long-run average, services continue to drag the economy down, reinforcing concerns about France's economic outlook in early 2025. The latest update leaves the French RPI at minus 14 and minus 10, meaning economic activities are slightly behind market expectations.

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.