France's service sector contracts for the second consecutive month, with demand remaining weak

Investing.com – According to the HCOB France Services PMI data released on Wednesday, France’s services sector continued to contract in February, marking the second consecutive month of decline in business activity.

The HCOB France Services Business Activity Index rose from 48.4 in January to 49.6 in February but remained below the 50.0 threshold that separates growth from contraction.

The index indicates a slight decrease in service activity, although the rate of decline has eased since the beginning of the year. Respondents attributed the weak performance to adverse weather conditions, project delays, and uncertainty.

Demand in France’s services sector weakened in the mid-first quarter, with February marking the third consecutive month of decline in new orders. The total sales volume fell at a moderate pace, the second fastest since July.

New orders from international clients dropped significantly in February, although the decline slowed to the mildest level in three months.

French service companies continued to process backlogs in February to compensate for weak sales. The volume of unfinished business declined for the sixth consecutive month, with the steepest drop in the past 12 months.

Despite weak demand, service providers in France increased their staffing levels in February. This marked the second consecutive month of employment growth in the sector, with the pace of job creation slightly accelerating to a four-month high.

Anecdotal evidence suggests that companies hired both permanent and temporary staff.

The sustained expansion in employment was accompanied by strong expectations for activity over the next 12 months. The February survey data showed that business sentiment among French service companies remained optimistic, reflecting plans to launch new products and attract new clients.

Overall business confidence was only slightly below the 16-month high reached in January.

French service providers reported a month-on-month increase in operating expenses, attributed to wage pressures and rising hardware and fuel costs. Input price inflation slowed to a four-month low, below the average since the survey began in 1998.

As French service companies passed higher costs onto customers, output prices increased in February. The rise was marginal and slower than at the start of the year.

The HCOB France Composite PMI Output Index for February stood at 49.9, slightly below the unchanged threshold of 50.0, indicating that private sector business activity was nearly stagnant. The figure rose from 49.1 in January.

Jonas Feldhusen, Chief Economist at Hamburg Commercial Bank, said, “France’s private sector lacks momentum.” He added, “Although the composite index has slightly increased, the overall level is far from encouraging.” He pointed out that many companies reported ongoing uncertainty, which delayed investment decisions and put pressure on new business.

Feldhusen also noted that confidence in the service sector’s outlook for the next 12 months remains high. “The fact that companies are choosing to hire rather than lay off staff highlights their cautious but constructive attitude toward the potential economic improvement,” he said.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.