France’s manufacturing rebound offers some relief, but no turning point yet
Lead — The recent uptick in French manufacturing, with a 0.5% increase in September following a 0.3% rise in August, signals a momentary relief, though it remains insufficient to indicate a strong industrial recovery. Notably, automotive production rebounded sharply, contributing significantly to this performance; however, output still lags behind last year's levels, highlighting an ongoing stagnation in the broader economy. Per the full note , the automotive sector remains particularly challenged, with production down 9.3% year-on-year. As investors digest these figures, they should remain cautious, as the lack of substantial recovery in the construction sector could signal persistent economic headwinds.
What the desk is arguing
The desk frames this as a momentary improvement rather than a definitive turning point for the French economy. While there’s been positive movement in manufacturing output, the industrial landscape remains fragile, as evidenced by a total industrial production drop of 0.5% in September.
The automotive sector's recovery accounted for much of this uptick, spiking with a rebound of 7.5% in production, yet the year-on-year figures paint a contrasting picture. The overall conditions, including a 4.5% decline in construction output, indicate that significant hurdles remain before sustainable growth can be claimed.
Where it sits in our coverage
Currently, our consensus target for EUR/USD is positioned at 1.075, with a range between 1.04 and 1.12. Notably, firms like jpmorgan are aligned with this view, targeting 1.10 for Mar26, while bofa is more cautious with a 1.04 target for the same tenor. This suggests a division in expectations surrounding the longevity of any manufacturing rebound amidst economic uncertainties.
How other firms see it
Several firms, including jpmorgan and citi, are aligned under similar growth expectations for the Eurozone, emphasizing tentative optimism based on recent manufacturing data. In contrast, firms such as bofa take a more bearish stance, concerned that these gains might falter in the face of underlying economic weakness.
Watch pairs like EUR/USD as the current manufacturing narrative unfolds, particularly in light of the ECB's stance in relation to economic indicators.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01French manufacturing output rose 0.5% in September, continuing from a 0.3% increase in August.
- 02Automotive production, a primary driver of this growth, remains down 9.3% from last year.
- 03Overall industrial production fell by 0.5% in September due to declines in sectors like electricity.
- 04Construction output continues to decline, contributing to a broader economic stagnation.
Market implications
Investors should monitor the EUR/USD closely, especially in light of the mixed signals from manufacturing data against the backdrop of declining construction output. A sustained break above 1.08 could indicate a cautious bullish sentiment, whereas a slip below 1.04 may prompt reevaluation of growth prospects.
Risks to this view
Any reversal could stem from external shocks affecting the Eurozone economy, such as a further deterioration in construction output or a slowdown in global demand impacting automotive exports. Additional pressure from ECB policy adjustments could also prompt significant shifts in market sentiment.
Articles France’s manufacturing rebound offers some relief, but no turning point yet Published 09:15 France Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download French manufacturing output rose for a second consecutive month in September, led by a sharp rebound in car production. But with output still below last year’s level and construction firmly in recession, industry can only soften, not reverse, the economy’s stagnation Charlotte de Montpellier French manufacturing output rose for a second consecutive month in September Manufacturing output returns to its June level There is finally some better news from the French economy. Manufacturing output increased by 0.5% in September, following a 0.3% rise in August, bringing production back to its June level.
The improvement was relatively broad-based. Food production rebounded by 1.0%, while output of electrical, electronic and computer equipment rose by 2.6%, reaching its highest level since November 2023. Transport equipment production also increased by 2.7%, largely thanks to a 7.5% rebound in the automotive sector.
However, September’s figures look more like a welcome recovery from previous weakness than the start of a sustained industrial upturn. Manufacturing output was still 0.9% below its level a year earlier. Transport equipment remained one of the main areas of weakness, with production down 3.8% year-on-year.
Despite September’s strong monthly increase, automotive production was still 9.3% lower than a year ago. The broader industrial picture was also less encouraging than the manufacturing data alone suggest. Total industrial production fell by 0.5% in September because of lower electricity output and remained 0.6% below its level a year earlier.
Construction remains deeply depressed Construction did not see a similar improvement. Output declined by a further 0.2% in September and was 4.5% lower than a year earlier. The downturn continues to affect every major segment of the sector.
Civil engineering output dropped by 6.6% year-on-year, while building construction fell by 4.8% and specialised construction activities by 4.2%. These figures confirm that construction remains a big drag on the French economy. Elevated financing costs, weak demand and the postponement of investment projects are likely to keep the sector under pressure in the coming months.
Industry should outperform the rest of the economy October’s business surveys were relatively encouraging for industry, particularly compared with the deterioration in other sectors. Combined with a favourable statistical carry-over from the third quarter, this suggests that manufacturing could support activity in the final months of the year. Still, the surveys predate the social unrest of 17 October, while order books remain weak, especially for exports, and tighter financing conditions are weighing on investment and inventories.
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