• Prior 48.1

The revision lower reaffirms the less than ideal conditions still plaguing the French manufacturing sector. Of note, new factory orders were seen decreasing at its fastest pace since January. That continues to underscore the more challenging domestic environment too alongside a drag on export markets as well. Besides that, business confidence also fell off to its lowest level since February. HCOB notes that:

"The economic outlook for France’s manufacturing sector has noticeably deteriorated at the beginning of the second half of the year. While the first half showed moderate signs of recovery, with the output index even registering growth in two successive months, the latest data point to another slowdown. Although the headline manufacturing index edged up slightly and the decline in output was only marginal, the sharp deterioration in order intakes and business expectations are causes for concern.

"This downturn in orders and expectations stands in stark contrast to the growing hopes for an economic turnaround in the first half of 2025. Recent interest rate cuts by the European Central Bank, announced defense-related investments, and regulatory easing proposals at the EU level made the soil fertile for a rebound in industrial activity. Instead, the significant drop in new orders signals growing uncertainty in the manufacturing sector. This is likely attributable both to the tense global trade environment and to the austerity agenda outlined by prime minister François Bayrou in Parliament recently. The resulting political framework is currently not conducive to investment, likely leading to cancellations or postponements of orders.

"Delivery times have lengthened at the sharpest rate in two-and-a-half years. Anecdotal evidence points to a combination of labor shortages at suppliers, scarcity of certain intermediate goods, and sporadic strikes as contributing factors. Against the backdrop of trade frictions, further headwinds are likely in the coming months. Global supply chains may undergo structural adjustments in response to new tariffs and strategic shifts by firms aiming to reduce their exposure to the United States, although the latest EU–US agreement with 15 percent base tariffs for US imports might provide at least some planning certainty for businesses. Unfortunately, the question arises as to how long the agreements will remain in place. Given the recent unpredictability of US trade policy, one might also ask whether the US administration could backtrack and push for higher tariffs after all."

Source: Forex Live