FRANCE DATA: Jan Flash PMI Composite Beats, But Overall Conditions Still Weak

Although the French manufacturing and composite PMIs were stronger-than-expected, overall demand conditions in France remain weak, with employment continuing to fall. Meanwhile, rises in input costs were not passed through to output charges, limiting inflationary pressure. Overall, the report appears conducive to sequential ECB easing through the first half of this year.

• The French January flash PMI saw a 3.4-point rise in the manufacturing component to 45.3, above the 42.5 expected. This was the highest manufacturing PMI since June 2024, though the index has been in contractionary territory since February 2023.
• The services component was a little softer-than-expected at 48.9 (vs 49.4 cons, 49.3 prior). As such, the composite reading strengthened to 48.3 (vs 47.7 cons, 47.5 prior).

Highlights from the release:

• “January’s weaker decline in private sector business activity was spurred by the manufacturing industry, which saw its softest drop in production since the middle of last year”.
• “Firms in both monitored sectors attributed the reduction in output to weaker demand”…” Some survey respondents noted a pick-up in client interest and a relative improvement in market conditions. Sales to overseas customers continued to fall”.
• “French businesses reported a quicker rate of job shedding during the latest survey period. According to anecdotal evidence, the drop in workforce numbers commonly reflected the expiration of temporary contracts and non-replacement of voluntary leavers”.
• “Input costs rose at the fastest pace since last August, with sector data revealing this was driven by services. According to firms in this part of the economy, increased salary costs were the major source of price pressures”
• “There was no passthrough of higher input prices to clients as companies’ own charges were discounted”… “Competition, lower interest rates and cheaper material costs reportedly encouraged firms on the survey panel to lower their charges.