French Services Sector Contracts for 14th Consecutive Month in October Amid Political Uncertainty

French Services Sector Sees Accelerated Decline

The French services sector continued its prolonged period of contraction in October, marking the 14th consecutive month of decline. The HCOB France Services Purchasing Managers' Index (PMI) Business Activity Index registered 48.0, down from 48.5 in September. This figure represents a six-month low and indicates the sharpest fall in services output since April.

Economists at Hamburg Commercial Bank (HCOB) highlighted that 'The French service sector is under pressure, with weak demand emerging as the central issue.' This downturn is largely attributed to a combination of weak demand, sluggish market conditions, and persistent political uncertainty within France.

Factors Contributing to the Contraction

The latest survey data revealed a significant reduction in new business receipts across the French service sector. Companies specifically cited political uncertainty as a key factor negatively impacting sales performances. Furthermore, new orders from international markets decreased for the third consecutive month in October, although the rate of contraction in foreign demand was the softest in this sequence.

Despite the overall decline in activity, there was a notable trend in employment. French services companies increased their workforce numbers in October, marking the third consecutive month of job growth. This acceleration in employment was driven by the filling of vacant positions and staff expansions in anticipation of future activity.

Broader Economic Impact and Outlook

The challenges in the services sector are part of a broader trend affecting the French private economy. The HCOB Composite PMI Output Index, which includes both services and manufacturing, remained below the 50.0 threshold (separating growth from contraction) for the 14th month, falling to 47.7 in October from 48.1 in September.

While input prices for service providers saw their slowest increase in over four-and-a-half years, business expectations for the coming 12 months deteriorated further in October. Several companies with a pessimistic outlook explicitly cited the domestic political situation as a contributing factor to their subdued confidence. This ongoing political instability is seen as weighing on economic growth and confidence, according to Bank of France Governor François Villeroy de Galhau.