Update on business conditions in France at the start of October 2022

1. In September, activity was stable in industry and rose in market services and construction

In September, although business leaders were anticipating a slight rise last month, activity remained stable overall in industry. However, performances varied across sectors.

Balances of opinion on production indicate that activity increased in September in computer, electronic and optical products, machinery and equipment, and electrical equipment. Conversely, activity declined compared with the previous month in rubber and plastic products.

In industry as a whole, the capacity utilisation rate decreased slightly to 79% in September (from 80% the previous month). The rate was above its long-term average in the majority of sectors, with the main exception being aeronautics and other transport where it was 5 percentage points below its long-term average.

In market services, activity expanded again in September, and at a slightly higher pace than expected last month by business leaders. The improvement was felt in nearly all business services – information services, publishing, management consultancy, engineering activities – as well as in personal services (accommodation and food services).

Activity grew markedly in construction, both in finishing and structural works.

The balance of opinion on cash positions continued to deteriorate in industry, and is now well below its long-term average, both for large corporations and SMEs. This deterioration, linked notably to energy and raw material prices, is affecting some industrial sectors more than others, especially pharmaceuticals, chemicals, wood, paper and printing, and electrical equipment. The balance of opinion on cash positions continued to decline in market services but remains close to its long-term average.

2. In October, business leaders expect activity to remain little-changed in industry and construction, and to increase slightly in services

For October, the surveyed business leaders expect activity to remain stable in industry. Certain sectors should see an improvement, notably computer, electronic and optical products, machinery and equipment, pharmaceuticals and aeronautics; in contrast, sectors that are strongly reliant on energy for production – rubber and plastic products, chemicals, metal and metal products manufacturing – are expected to see further falls in activity.

In services, business leaders predict that activity will rise slightly in most sectors, although at a lower rate than in previous months.

In construction, activity is anticipated to remain little-changed overall, with a slight contraction in structural works and a rise in finishing works.

Our monthly uncertainty indicator, which is constructed from a textual analysis of comments by the respondent companies, shows that uncertainty increased in September. The rise was particularly marked in construction and, to a lesser extent, in services. Business leaders mainly cited higher energy prices as the main factor of uncertainty for the coming months.

The balance of opinion on order books deteriorated in September in industry. After the peaks seen in January 2022, order books declined in nearly all industrial sectors. In construction, however, the balance of opinion on order books improved slightly. Nevertheless, current levels in both cases remain above their long-term average.

Whereas inventories of finished products had been deemed low in industry since the Covid crisis, the upward trend that began in the summer is being confirmed; inventory levels are now considered to be above normal. Indeed, certain firms said they were overstocking in anticipation of production difficulties linked to the energy crisis in the coming months.

3. Supply difficulties are continuing to ease, prices have started to rise again and recruitment difficulties remain high

Supply difficulties continued to ease in September, while nonetheless remaining high. The share of business leaders who said that supply difficulties were putting pressure on their activity declined in industry (49% after 51% in August) and in construction (40% after 43% in August).

Since the peak recorded in April 2022 for industry (when 64% of firms said they were experiencing supply difficulties), all sectors have seen an improvement (of 15 percentage points on average), especially wearing apparel, textiles and footwear (improvement of 36 percentage points), and wood, paper and printing (improvement of 32 percentage points).

The balance of opinion on developments in finished goods prices over the previous month started to rise again in industry after declining for four consecutive months, reflecting increases in raw material and gas/electricity prices.

Prices also increased in the market services covered by the survey, especially in personal services (accommodation and food services, automotive repair) and in transportation.

More specifically, 29% of business leaders in the manufacturing industry said they had raised their selling prices in September. The proportion was particularly high in agri-food (where 43% of firms said they had increased their prices), chemicals, and wood, paper and printing. In construction it stood at 49% and in market services at 21%. This renewed growth in September (based on unadjusted data, i.e. not corrected for seasonal variations) may in part reflect a seasonal “catch-up” effect that was already observed at the same time last year, as there are generally fewer price rises in July and August. The outlook for October suggests a slight fall in the share of business leaders reporting price rises in industry (23%), services (20%) and construction (44%).

Business leaders were also asked about their recruitment difficulties. These remain high, affecting 58% of respondents in all sectors combined. Difficulties are easing slightly in industry, to 48%, and rising in construction (64% after 57% in August).

4. Estimates primarily derived from the survey, supplemented with other indicators, suggest that GDP stabilised in September compared with August and should expand slightly in October

For the month of September, using granular survey data and other available economic data, we estimate that GDP remained stable compared with August. This reflects the stability of activity in both industry and services. Value added in construction is expected to have increased slightly in September.

This assessment is based on INSEE data on the industrial production for July and August, and on the production in services for July, which have led us to revise activity down for July and up for August. Our forecast is also based on high-frequency data that we monitor in parallel for sectors not covered by the survey (notably construction, wholesale and retail trade and transportation), to confirm our assessment of those industries and services that are covered. In particular, road traffic and credit card data provide information on the transportation sector, where activity is estimated to have declined in September. Credit card data also provide information on retail trade, which is also estimated to have fallen slightly in September.

Overall, in the quarter ending in September, activity is estimated to have held up well, supported by the strength of certain market services but also by value added growth in industry over the summer. In the third quarter of 2022, GDP growth is expected at ¼% compared with the previous quarter.

In a highly uncertain environment, especially regarding the cost and availability of energy, business leaders’ expectations for October at this stage are slightly upward oriented, although again with strong variations depending on the sector.