France's Factory Output Slips, But Is a Rebound Coming?

French manufacturing output registered a 0.8% decline in December, a reversal from the 0.5% growth seen in November. However, a closer look reveals the drop was concentrated in specific, highly volatile sectors and does not signal a broader industrial slowdown.

Unpacking the December Decline

The negative headline figure was primarily driven by weaker production in transport equipment, a sector that makes up 13% of France's total manufacturing output. The aerospace segment, in particular, saw a sharp drop that erased the gains from the previous three months.

Such volatility is typical for the aerospace industry, and this one-month dip is not considered a cause for alarm. In fact, on a yearly basis, production of transport equipment is still up by a strong 12.4%.

While coke production also fell by 0.9% over the month, every other industrial sector reported an increase in output, underscoring the narrow scope of the December downturn.

A Positive Outlook for 2026

Despite the monthly dip, the forecast for French industry in the first half of 2026 remains optimistic. A cyclical improvement is expected, supported by several key factors:

• Regional Recovery: A broader European economic recovery is gaining momentum.

• German Stimulus: Germany's stimulus plan is anticipated to boost regional demand.

• Business Confidence: Improving business sentiment and healthier order books point to higher industrial production in the coming months.

• Defense Spending: Rising defense budgets will continue to support the industrial sector.

• Aerospace Strength: Aerospace production is projected to remain a significant driver of growth.

Potential Risks on the Horizon

However, the path forward is not without challenges. Several factors could weigh on economic activity and exports:

• Stronger Euro: The recent appreciation of the euro poses a risk to export competitiveness. The European Central Bank estimates that a further 4.3% rise in the euro against the dollar could reduce eurozone GDP growth by 0.1 percentage points.

• High Tax Burden: The high tax burden on French companies may constrain business activity.

• Weak Investment: Recent business surveys indicate that investment intentions remain very weak.

The Final Verdict: Modest Growth Expected

Balancing these positive drivers and potential headwinds, the overall outlook for 2026 is moderately positive. GDP growth is forecast to reach approximately 1%, a slight acceleration from the 0.9% growth recorded in 2025.