Employment in the French services sector has fallen for the first time in four years, however growth expectations for the sector over the coming year have picked up.
According to the HCOB France Services PMI Business Activity Index, produced in conjunction with S&P Global, the index for the French services sector stood at 49.3 in December, up from 46.9 in November, which was a ten-month low.
While the sector ended 2024 with a further reduction in business activity levels – the fourth month in a row that output has fallen – firms are ‘more upbeat’ than the previous month, while price pressures have reduced somewhat.
‘A step in the right direction’
“Although the service sector in France continued to contract slightly, according to the HCOB PMIs for services, it was a step in the right direction as the index improved compared to the previous month,” commented Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank. “That said, aside from the period around the Olympic Games, the service sector has barely supported overall growth this year. Surveyed companies cited lower customer demand, political uncertainty, and difficulties in obtaining credit as contributing factors to December’s drop in activity.
“Despite weak demand for services in France, input prices are increasing, although inflation remains well below the historical average. Positively, compared to the previous month, cost pressures eased slightly. However, service providers’ pricing power is suffering more due to the current demand weakness. This year, service prices have not risen faster than input prices.”
Business in the French services sector cited weaker customer demand, budget freezes, and political uncertainties as contributing factors to the overall performance, while declines in new orders, both domestic and international, persisted but moderated compared to prior months.
The drop in employment, meanwhile, can be attributed to redundancies, the expiry of temporary contracts, and decisions not to replace departing staff.
Outlook for 2025
Looking ahead, Chaudhry said that he expected 2025 might bring “a little more dynamism” to the sector.
“However, French service providers aren’t that optimistic in the medium term,” he noted. “Order intakes are falling, and the order situation is particularly suffering abroad. Regarding their subdued outlook, reporting companies cite political uncertainty as a major reason, which is understandable given the unclear political and financial situation in Paris. Reflecting this sentiment, there were layoffs in December.
“Future output is expected to grow over the next twelve months, but not at the pace firms typically expect, with the future activity index below its historical average.” Read more here.
