The economic environment in France appeared to improve in August, indicating a degree of optimism among economic professionals. However, a closer examination reveals that even though the index rose by three points from July—when it plummeted by five points to reach 94—it remains at 97 points, which is still below the long-term average of 100, according to the National Institute of Statistics and Economic Studies (INSEE).
“All sectors of activity are contributing to this rebound,” he stated.
Breaking it down by sector, the business climate in industry has increased by four points in one month, reaching 99 in August compared to 95 in July. Entrepreneurs within this sector are more optimistic about their production prospects and foreign demand. In the services sector, the indicator regained three points over the past month to stand at 98, with managers expressing greater confidence regarding demand and their workforce. This particular aspect of the business climate had decreased by six points in July.
In construction, the business climate improved by two points, returning above the historical average (101 in August versus 99 in July), with entrepreneurs providing a less harsh evaluation of both their past and future activities. Lastly, in retail, the indicator rose by two points compared to the previous month (96 versus 94 in July), spurred by a more favorable “general outlook for the sector’s activity.”
Measured monthly by INSEE, the business climate has fluctuated around its historical average in 2023 and 2024 before sharply declining in July following the early legislative elections on June 30 and July 7.
Simultaneously, the employment climate is also showing signs of recovery, according to INSEE, reaching 98 points in August, which is two points below its long-term average. This rebound is largely attributed to improved prospects for staff development in the services sector (excluding temporary workers), the institute states.
Business creations down this summer
However, this seemingly improved situation might be short-lived. According to INSEE, the number of new businesses established in France fell by 1.6% in July, marking the second consecutive month of decline following a 0.7% decrease in June. In total, 93,800 businesses were created last month. The number of traditional companies established decreased by 3.1% (33,004 businesses) after a 2.7% rise in June, while registrations of micro-entrepreneurs also fell (60,796), though at a more moderate rate than in June (-0.7% after -2.5%).
In July, the decline affected “the majority of sectors,” the National Institute of Statistics reported.
Focusing on specific sectors, INSEE notes that new business creations are “sharply decreasing again” in information and communication (-8.3% after -10.5%), and “more moderately” in business support (-2.1% after -1.3%). They are also down in household services (-3.0% after +1.8%), but are rising in transport and storage (+3.8% after -10.4%) and in real estate activities (+2.8% after -1.9%).
Political uncertainty causes stress among bosses
Since the early legislative elections triggered by the dissolution of the National Assembly by the President of the Republic, France has been undergoing a period of political uncertainty. The resigning government led by Prime Minister Gabriel Attal remains in place, awaiting the appointment of a new executive.
This Friday, Emmanuel Macron will initiate a series of consultations with leaders of various political parties and groups in the National Assembly. Although she does not hold an elective office, Lucie Castets, the candidate for Matignon designated by the New Popular Front (NFP), is among the guests at the Elysée.
However, these uncertainties regarding the new government are causing concern among business leaders. On the eve of the Meeting of French Entrepreneurs (REF), organized by Medef on Monday and Tuesday, Medef president Patrick Martin acknowledged that “Entrepreneurs are currently worried.” The same sentiment is echoed by the Confederation of Small and Medium-Sized Enterprises (CPME). Its leader, François Asselin, asserts that “These periods of uncertainty are never very good for the morale of bosses and for the economy in general.”
In this politically troubled environment, chief economist of the Asterès firm, Sylvain Bersinger, does not anticipate that the rebound in the business climate observed this August will be “durable.”
The current political uncertainty “confuses the forecasts of economic agents,” the economist writes.
He added in a note published this Friday: “The absence of a government does not allow us to anticipate the economic policy that will be implemented in the coming months and years. (…) Moreover, in a context of weakened public finances, the next government—whatever it may be—will have very limited budgetary flexibility, which prevents us from hoping for support for activity through public spending.”
Business Climate in France: A Complex Landscape in August 2023
Indicators of Recovery
Despite a perceived improvement in the business climate in France, a detailed examination reveals a more complex picture. According to the National Institute of Statistics and Economic Studies (INSEE), the business climate index rose to 97 points in August, a modest recovery from July’s alarming drop to 94. However, this figure remains below the long-term average of 100, suggesting that the optimism might be somewhat misplaced.
“All sectors of activity are contributing to this rebound,” remarked an INSEE representative.
Sector Performance Overview
A closer look at various sectors provides insights into performance trends:
- Industry: The industrial sector saw a notable increase of four points, reaching 99. Entrepreneurs expressed greater optimism regarding production prospects and foreign demand.
- Services: The services sector climbed three points to 98, indicating a boost in confidence surrounding demand and workforce stability after a significant drop of six points in July.
- Construction: Positive momentum continued in construction with a two-point gain, bringing the index to 101, illustrating a more favorable view of historical and future activity.
- Retail Trade: Retail also improved, rising two points to 96, driven by a better outlook for sector activity.
Employment Climate Recovery
The employment climate has similarly rebounded, reaching 98 points in August, although it remains slightly below the long-term average. This uplift can mostly be attributed to improved growth prospects in the services sector (excluding temporary staff), according to INSEE.
Business Formation Trends
Decline in New Businesses
Despite some positive indicators, the general atmosphere may not be as rosy as it seems. The number of new business registrations in France fell by 1.6% in July, marking the second consecutive month of decline following a 0.7% drop in June. In total, 93,800 new businesses were registered that month:
| Type of Business | July Registrations | Change |
|---|---|---|
| Traditional Companies | 33,004 | -3.1% |
| Micro-Entrepreneurs | 60,796 | -0.7% |
According to INSEE, this decline spanned nearly all sectors, highlighting a worrying trend for the French economy.
Sector-Specific Insights
Decomposing the statistics further reveals significant variations across sectors:
- Information and Communication: Showed a sharp decline of 8.3% in new registrations.
- Business Support Services: Experienced a moderate decrease of 2.1%.
- Household Services: Saw registrations fall by 3.0%.
- Transport and Storage: Contrarily, this sector witnessed growth, gaining 3.8% in registrations.
- Real Estate Activities: Increased by 2.8% in new registrations.
The Political Landscape: A Source of Uncertainty
Political instability continues to loom over the French business environment, primarily driven by the aftermath of early legislative elections initiated by President Macron’s decision to dissolve the National Assembly. With a caretaker government in place led by Prime Minister Gabriel Attal, uncertainty prevails as discussions regarding the future executive begin in earnest.
Emmanuel Macron’s recent engagements with political leaders, particularly with the New Popular Front, underscore the ongoing quest for political stability. However, leading business figures express apprehension regarding the implications of this uncertainty on the market. Patrick Martin, head of the Medef, stated that “Entrepreneurs are currently worried.”
Implications for Economic Forecasts
The ramifications of political instability on economic forecasts cannot be understated. Sylvain Bersinger, the chief economist at Asterès, anticipates that the recent upturn in the business climate may not be sustainable. He notes:
Current political uncertainty “confuses the forecasts of economic agents.”
Bersinger’s analysis indicates that the absence of a formal government complicates predictions about forthcoming economic policies. He suggests that the constrained public finances will limit any fiscal space the new government may have to stimulate economic activity.
Key Takeaways & Practical Insights
For entrepreneurs and stakeholders navigating the French economy, here are vital considerations:
- **Monitor Sector Trends**: Keep a close eye on specific sectors witnessing growth or decline to align business strategies accordingly.
- **Assess Political Developments**: Political clarity is critical; staying informed about government strategies can help minimize risks.
- **Focus on Employment**: As employment prospects improve, businesses should strategically plan workforce allocation to maximize productivity.
- **Innovation and Adaptation**: Businesses may need to innovate and adapt in response to changing market conditions. Embracing flexibility could provide a competitive advantage.
In conclusion, while there are signs of a recovering business climate in France, the underlying uncertainties—both economic and political—suggest a cautious approach for business owners and investors.
