French activity slows in May, Q2 GDP stable

According to the Banque de France's monthly survey, business activity in France slowed sharply in May across manufacturing, services, and construction. The survey, covering 8,500 companies, estimates that national GDP will remain stable in the second quarter.

May activity cools across sectors

French business activity experienced a notable slowdown in May, affecting the manufacturing, market services, and construction sectors.

In manufacturing, the pace of growth was very slow, falling below its long-term average, primarily impacting sectors facing sluggish demand, such as automotive and agri-food, due to production stoppages and weak order books.

Conversely, defense and aeronautics sectors maintained strong performance, supported by international demand.

Market services saw a significant contraction, particularly in transport and storage, and motor vehicle repair, influenced by rising oil prices.

However, accommodation, food services, publishing, and cleaning services remained buoyant, partly due to the timing of bank holidays.

Construction activity showed little change, with a slight decline in both structural and finishing works, reflecting persistent weakness in new-builds.

The production capacity utilisation rate remained stable at 77 percent, suggesting the slowdown was more due to fewer working days than reduced intensity.

Inventories in industry remained high, indicating both precautionary measures and insufficient demand.

June outlook: cautious optimism

Business leaders anticipate an improvement in activity for June across manufacturing and market services, with stabilization expected in construction.

Manufacturing sectors that declined sharply in May, such as automotive and chemicals, foresee a recovery, while defense-related sectors maintain a positive trend.

Market services also expect broad improvement, with favorable outlooks in publishing and transportation.

Construction is set for stabilization, with finishing works partially offsetting ongoing difficulties in structural projects.

Order books in manufacturing were still perceived as weak in May, though aeronautics and defense-related sectors reported strong backlogs.

Uncertainty continued to ease following the Middle East conflict, with raw material prices and supply chains now seen as requiring vigilance rather than new sources of uncertainty.

Cash positions were broadly normal but showed sectoral disparities, deteriorating in some sectors while remaining strong in others.

Cost pressures persist, prices rise

Despite a general slowdown in activity, selling prices continued to rise in May across all major sectors, albeit at a slower pace than in April.

This persistent upward trend, with 14 percent of businesses raising prices—double the normal level—underscores the ongoing challenge of cost pass-through amid high raw material and energy prices.

While recruitment difficulties remain, the survey suggests that underlying inflationary pressures, rather than demand, are still driving price adjustments, limiting the extent of a broader economic recovery.