Bank of France releases business climate survey

The Bank of France published its monthly business climate survey on October 12, based on responses from about 8,500 companies or establishments between September 27 and October 5. The survey provides insights into the current state of industrial activity and challenges faced by businesses across various sectors.

Industrial production growth slows

Industrial production continued to increase in September, though at a slower pace than expected. The Bank of France noted that this slowdown does not indicate a widespread drop in demand, as deliveries remain strong in certain sectors. However, supply chain issues are causing delays in some areas.

Order books remain strong in some sectors

Order books remain particularly full in aerospace, electrical equipment, and computer, electronic, and optical products. The Bank of France attributes this to strong demand in aerospace, defense, electrification, and digital infrastructure. In electrical equipment, demand from data centers supports orders, though a full order book does not always lead to immediate production.

Production challenges in aerospace and electrical equipment

Production in electrical equipment declined in September, partly due to supply issues, while aerospace remains very dynamic. However, aerospace supply chains face tensions, with difficulties in engines and certain equipment. Around 20 percent of aerospace companies report supply problems, compared to 11 percent for the entire industry.

High utilization of production capacities

The utilization rate of production capacities (TUC) reached 76.8 percent in September, up from 76.4 percent in August. This rate remains particularly high in electronics and electrical equipment, despite a slight decline. In aerospace, the TUC rebounds sharply due to strong activity.

Finished product stocks increase

Finished product stocks increased slightly in September, particularly in food processing and aerospace. In aerospace, this increase is linked to increased production pace and supply tensions. Recruitment difficulties remain persistent, affecting 16 percent of industrialists, compared to 18 percent for all companies surveyed.

Weak order books in some sectors

In contrast, order books remain very weak in chemistry, wood-paper-printing, and rubber-plastics-glass. In these sectors, the weakness of demand continues to weigh on prospects. The wood-paper-printing sector shows a more nuanced situation, with activity stabilizing in September due to cardboard packaging preparing for end-of-year orders.

Low utilization and cash flow issues

In wood and rubber-plastics-glass, the utilization rate of capacities remains low, and cash flow remains tight, as in chemistry and metallurgy. These sectors continue to face challenges related to weak demand and limited production capacity.

Rising input costs and limited price increases

The survey indicates that the weakness of some markets is combined with the increase in the cost of inputs. Industrial raw material prices rose sharply in September, according to the company managers surveyed. This movement affects all sectors, particularly chemistry, rubber-plastics-glass, and the automotive industry.

Limited transmission of input cost increases

Industrial selling prices, however, rose much more modestly. The Bank of France notes limited transmission in chemistry and rubber-plastics-glass, where demand remains weak, and a more marked increase in electrical equipment. In September, 13 percent of industrialists raised their prices, compared to an average of 10 percent at this time. The increase in selling prices only partially compensates for the rise in input costs, exerting pressure on industrial margins.

Outlook for October and third quarter GDP

For October, industrialists expect an acceleration in production, with electrical equipment rebounding strongly and electronics strengthening. However, the automotive industry is expected to decline sharply due to temporary site closures. For the third quarter, the Bank of France estimates that gross domestic product (GDP) would increase by about 0.1 percent, with merchandise services and energy supporting activity, while a significant decline in value added is anticipated in manufacturing and construction.