The latest French PMI data presents a mixed picture for forex traders monitoring the eurozone’s economic health. December saw a divergence between sectors: the manufacturing PMI rose to 50.6, beating expectations of 48.1 and improving from a prior reading of 47.8. Conversely, the services sector experienced a significant decline, dragging the composite PMI slightly down to 50.1, just below the forecast of 50.3 and below November’s 50.4.

Overall, activity across the French economy was largely stagnant at the end of 2023. Employment conditions remained stable, and price developments showed little change from the previous month. This suggests that despite manufacturing stabilising and even seeing some growth, the slump in services left the broader economy sluggish.

HCOB notes that French business conditions in December were largely static, with the flash PMI marginally above the growth threshold but indicating a softer expansion than in November. The economy continues to face uncertainty from households and firms alike.

Within the manufacturing sector, the modest climb past the 50-point mark was driven by encouraging improvements in output and order books, notably bolstered by foreign demand. Positive signals also came from the Future Output Index and an increased willingness among firms to expand their workforce, both of which could bode well for near-term growth.

However, political uncertainty remains a significant impediment. The government’s failure so far to pass a budget continues to weigh on confidence. Although the recent approval of the social security budget offers some political relief for Prime Minister Lecornu, subdued consumer sentiment and strong international competition, particularly from the US and China, constrain growth prospects.

One potential bright spot lies in the aviation industry, which has been performing robustly and could provide additional support to manufacturing and the wider economy in the future.

For forex traders, these developments signal a cautious outlook for the euro. While manufacturing shows some resilience, persistent softness in services and ongoing political and external pressures suggest that the French economy—and by extension the euro—may face limited upside in the near term.

Original Source: Justin Low of investinglive.com