HCOB’s latest Purchasing Managers’ Index (PMI)® figures showed that the Eurozone’s second-largest economy remained under pressure at the start of the second quarter, as private sector output fell for the eighth consecutive month. Business activity levels were impacted by a sharp and accelerated decline in new orders, with survey data indicating a clear weakness in demand in domestic markets.
Companies’ outlook for production over the next twelve months was later pessimistic, the most pessimistic in nearly five years.
HCOB Flash’s main composite PMI for France came in at 47.3 points in April, down from 48.0 in March, suggesting a moderate but sharper contraction in private sector business activity at the start of the second quarter. The latest reading of less than 50.0 in the main index represents an eighth consecutive monthly contraction in output. Fundamental data revealed that April’s contraction was driven entirely by the services sector, as manufacturing output increased for the first time. Once since May 2022. However, the improvement was slight overall.
Service providers have typically linked lower production to shrinking new business demands. The volume of new business orders received by French service companies fell during the month by the largest margin since November 2020. This contrasts with the manufacturing sector, which recorded a steady decline in sales, thus the weakest common decline in nearly three years. The survey’s compiled new order demand gauge pointed to a sharp and accelerated decline in demand across the French private sector in April.
It is worth noting that the latest survey data indicated a clear weakness in demand within domestic markets. While total new orders contracted at a significantly faster pace in April, new export sales saw their lowest decline since August 2022.
French companies pessimistic amid hiring and trade pressures
French companies surveyed again showed a tendency to lower hiring capacity at the start of the fourth quarter. Resignations and non-renewal of fixed-term contracts have been described as reasons for the decline in employment. The extent of the job cuts was modest and slightly faster than seen in March.
The contraction in staff also came amid a deterioration in the outlook for the next 12 months. In fact, the French companies surveyed were a bit pessimistic overall, recording the most pessimistic assessments by companies in nearly five years. Notably, sector data showed that the decline in sentiment was only due to deteriorating expectations among service providers, with manufacturing optimism rising to an 11-month high. The pessimistic outlook was linked to concerns about domestic and international economic conditions, with companies expecting their sales to be affected.
In terms of product prices, the April survey data revealed a further easing in cost pressures. With input prices rising at the slowest pace since the start of the year. Meanwhile, prices were cut for the first time in three months. With corporate reports suggesting it was in response to fierce competition.
Commenting on the preliminary PMI data, Jonas Fieldhouse. Assistant economist at Hamburg Commercial Bank, said: “The latest PMI figures from the Hamburg Commercial Bank have been eagerly awaited since the disruptions caused by Liberation Day. Despite the slight decline compared to the previous month, the data is not as bad as we expected. Given the prevailing uncertainty and tension in global trade due to ongoing tariff disputes. However, it is increasingly clear that the French private sector will face significant pressure in the coming months.
Weak manufacturing and potential interest cut in the Eurozone
Conditions for France’s manufacturing sector remain weak in April. The PMI has not yet entered growth territory, with new orders continuing to decline. Input purchases continue to shrink, and inventory reductions continue. On a positive note, production rose slightly this month. However, this does not yet indicate a sustainable transformation. The downturn risk from trade frictions could be partially mitigated by increased European defense spending and the willingness of both President Macron and the next potential German chancellor, Merz, to reduce regulatory barriers at the EU level.
Africa and some regions of Europe were cited as sources of growth, according to some survey respondents. Reduced workloads continued to drive the completion of the backlog during the last survey period. However, the extent to which existing orders fell was the weakest in three months as the manufacturing sector stabilized. For the first time in more than two years, French factories have not recorded a drop in their turnovers.
The service sector remains in a fragile situation. With the start of the second quarter, business activity deteriorated, with a decline in new domestic and foreign business. As a result, service providers have reduced their workforce.
Price pressures are finally easing up. Input price inflation, which has raised major concerns due to rising wages in recent months. Slowed for the first time in 2025 so far, while prices have contracted. This trend may worsen across the Eurozone in the coming months. We expect trade disputes to negatively impact domestic prices. Potentially leading to a surplus of goods that cannot be sold in the United States. As a result, HCOB Economics expects widening interest rate cuts in the Eurozone. Given lower prices and slower growth, we expect the ECB to make three more rate cuts this year.
