France’s manufacturing PMI for July was revised down to 48.2 from an earlier estimate of 48.4. This suggests that the sector is still facing significant challenges. New factory orders dropped sharply, marking the biggest decline since January. Business confidence has also fallen to its lowest level since February.

Worsening Economic Outlook

The economic outlook for France’s manufacturing sector seems to have declined as the second half of the year begins. There were some signs of recovery in the first half, but recent data shows a slowdown. While the overall manufacturing index rose, it was overshadowed by fewer orders and poorer business expectations. While there is hope for economic improvement in 2025, the drop in orders and expectations is concerning. Recent easing of EU regulations and cuts in interest rates were anticipated to boost industry activity. However, political uncertainty and global trade tensions are hampering investments, leading to possible order cancellations. Delivery times are now much longer due to labor shortages, a lack of goods, and strikes. Supply chains may need to adjust due to new tariffs and changes within companies. Although the EU-US 15 percent tariff agreement could offer some stability, worries about its long-term viability persist due to the unpredictable nature of US trade policy. The finalized manufacturing numbers for July in France confirm a clear slowdown is occurring. Hopes for a recovery in the second half are now uncertain, especially as new orders are declining at the fastest rate since the year’s start. We should consider preparing for further weakness in French stocks by purchasing put options on the CAC 40 index.

Economic and Political Challenges

This decline in manufacturing is occurring alongside persistently high inflation, creating a tough environment. The latest inflation data for the Eurozone in July 2025 showed a rate of 2.8%, still well above the central bank’s target, limiting its ability to respond effectively. This mix of slowing growth and high inflation highlights the need for caution and makes defensive strategies more appealing. The political climate in France, driven by the government’s new austerity plan, is impacting business confidence. This situation mirrors what happened during the 2011-2012 sovereign debt crisis when fiscal tightening led to a prolonged economic downturn and market volatility. Given this historical context, we see the current political environment as a significant obstacle for domestic investment and growth. This negative outlook for Europe contrasts with the stronger US economy, putting downward pressure on the euro. The EUR/USD exchange rate has already dropped by over 2% in the last month, recently hovering around the 1.07 level. We believe there’s potential for the euro to weaken further, and traders should look to sell on any strength. Overall uncertainty is increasing due to poor economic data, supply chain issues, and an unpredictable global trade environment. The VSTOXX, which tracks Eurozone equity market volatility, has been rising and is now above the 18 level, a significant increase from earlier lows this year. We see value in buying call options on the VSTOXX to protect against and potentially profit from expected market volatility in the coming weeks. Create your live VT Markets account and start trading now.

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