France shrinks again, eurozone loses momentum: what does this mean for Slovenia?

French business activity contracted for the second consecutive month in October, dragging the broader euro area growth rate down to its lowest level in four months. The flash composite purchasing managers index for France fell sharply from 51.1 to 48.4 points, missing analyst expectations that the indicator would remain above the neutral threshold of 50. This decline marks a reversal of the modest improvement recorded in September, signaling that both manufacturing and services sectors entered the final quarter of the year with weaker momentum than previously indicated. In the detailed breakdown, the services index dropped from 51.2 to 48.4, while the manufacturing index slipped from 50.6 to 49.3. Although a reading below 50 indicates contraction rather than immediate recession, the data reflects a renewed reduction in private sector activity. Survey responses highlighted that uncertainty is influencing corporate decision-making, with demand for French goods and services experiencing its steepest decline since May. Companies reported postponing projects and limiting spending. Joe Hayes, an economist at S&P Global Market Intelligence, described the September uptick as temporary, pointing to tightening financial conditions and political pressures. Business outlooks for the next twelve months hit a six-and-a-half-year low, driven by public finances and uncertainty ahead of the 2027 presidential election. These concerns were mirrored in bond markets. On Thursday, October 22, the yield on the ten-year French government bond reached 5.14 percent, the highest level since July 2002. The spread over comparable German bonds rose to a fifteen-year high. A large budget deficit, political fragmentation, and difficulties in passing austerity measures have increased borrowing costs, squeezing fiscal space for other expenditures. Across the wider euro zone, the composite PMI eased from 53.1 to 51.9, falling short of the forecast 52.7. While activity continues to grow, the pace is the slowest in four months. Firms cited higher costs for energy, fuel, and transport, alongside slowing new order growth and near-stagnant employment. Sales price increases lagged cost inflation, compressing profit margins. For Slovenia, the slowdown presents specific risks given its trade exposure. According to export portal data, Slovenian merchandise exports to France totaled approximately 1.8 billion euros in 2025. Vehicles and parts accounted for roughly 35 percent of this volume, electrical machinery and equipment for 16 percent, and mechanical appliances for nine percent. These three categories represented nearly two-thirds of total exports. As domestic industry recovers, continued growth depends heavily on European customer orders. If French households delay car purchases or firms postpone equipment investments, Slovenian manufacturers and their suppliers face reduced demand, complicating price negotiations amid rising input costs.