The December 2025 PMI reading for France, released on December 3rd, climbed to 50.40, up from 49.90 in November and well above the 47.70 recorded in October. This marks the first time since August 2024 that the PMI has crossed the 50 threshold, indicating expansion in the manufacturing sector. The Sigmanomics database confirms this is the highest PMI reading in 16 months, signaling a potential inflection point after a prolonged period of contraction and stagnation.

Drivers this month

• Stronger domestic demand boosted new orders by 1.20 points.
• Export orders stabilized after six months of decline.
• Input price pressures eased, supporting margin recovery.
• Employment levels remained flat, reflecting cautious hiring.

Policy pulse

The PMI now sits just above the neutral 50 mark, aligning with the European Central Bank’s (ECB) inflation target zone. This suggests that recent monetary tightening may be starting to balance inflation control with growth support. The ECB’s pause in rate hikes in November appears timely given this data.

Market lens

Immediate reaction: EUR/USD rose 0.30% within the first hour post-release, reflecting improved growth sentiment. French 2-year government bond yields edged lower by 5 basis points, signaling reduced recession fears.

The PMI’s rise coincides with modest improvements in core macroeconomic indicators for France. Industrial production grew 0.40% MoM in November, while retail sales edged up 0.20%. Inflation moderated to 2.10% YoY, down from 2.50% in October, easing pressure on consumer purchasing power. Unemployment held steady at 7.10%, near its lowest level since early 2024.

Monetary Policy & Financial Conditions

The ECB’s key interest rate remains at 3.75%, unchanged since November’s meeting. Financial conditions have eased slightly, with credit spreads narrowing and lending standards stabilizing. The French banking sector shows resilience, supporting corporate financing needs amid cautious optimism.

Fiscal Policy & Government Budget

France’s fiscal stance remains moderately restrictive, with the government targeting a deficit of 3.20% of GDP in 2025. Recent budget adjustments prioritize green investments and social support, balancing growth stimulus with fiscal prudence. However, rising debt levels (currently 112% of GDP) constrain expansive fiscal measures.

Market lens

Immediate reaction: The CAC 40 index gained 0.50% following the PMI release, reflecting investor optimism about industrial growth prospects. The French franc (EUR/CHF) strengthened marginally, while the 10-year government bond yield remained stable at 3.10%.

Looking ahead, the PMI’s expansion reading opens three plausible scenarios for France’s economy over the next 6-12 months:

Bullish scenario (30% probability)

• PMI sustains above 50, driven by strong domestic demand and export recovery.
• Inflation remains contained, allowing the ECB to maintain current rates.
• Fiscal stimulus focused on innovation and green transition boosts productivity.

Base scenario (50% probability)

• PMI fluctuates around 50, reflecting balanced growth and inflation pressures.
• Monetary policy remains cautious, with possible minor adjustments.
• Geopolitical risks and supply chain issues persist but do not worsen.

Bearish scenario (20% probability)

• PMI falls below 50 again due to renewed external shocks or energy price spikes.
• Inflation surprises on the upside, forcing ECB rate hikes.
• Fiscal constraints limit government support amid slowing global demand.

External Shocks & Geopolitical Risks

Ongoing tensions in Eastern Europe and energy market volatility remain key downside risks. Any escalation could disrupt supply chains and dampen export demand, reversing recent PMI gains.

France’s December PMI reading of 50.40 marks a tentative but meaningful recovery in manufacturing activity. Supported by easing inflation and stable monetary policy, the data suggests the economy may be emerging from a challenging period. However, fiscal limits and external uncertainties temper optimism. Investors and policymakers should monitor upcoming PMI releases closely as a barometer of sustained growth.

Financial Markets & Sentiment

Market sentiment improved modestly, with equity indices and the euro gaining on the news. However, bond markets remain cautious, reflecting lingering concerns over inflation and fiscal sustainability. The PMI’s trajectory will be critical in shaping market expectations in early 2026.

Structural & Long-Run Trends

Long-term challenges such as demographic shifts, digital transformation, and climate policy continue to shape France’s economic landscape. The PMI’s recent uptick may signal initial benefits from structural reforms and innovation investments, but sustained progress requires consistent policy support.

Since 2020, the French PMI and CAC40 index have shown a strong positive correlation (r=0.68). Periods of PMI expansion above 50 typically coincide with upward trends in the CAC40. For example, the PMI rebound in late 2023 preceded a 12% rally in the CAC40 over six months. This relationship underscores PMI’s value as a leading indicator for equity market performance in France.