French services sector contracts sharply in February, PMI shows

PARIS (Reuters) - France's services sector experienced its steepest contraction in business activity since October 2023 in February, as demand weakened sharply and employment fell at the fastest rate since August 2020, a business survey showed on Wednesday.

The HCOB France Services PMI, compiled by S&P Global, dropped to 45.3 in February from 48.2 in January, marking a sixth consecutive month below the 50.0 threshold that indicates growth.

The decline was driven by a significant fall in new orders, with companies increasingly relying on their backlogs of work to sustain operations.

"The French services sector is in dire straits," said Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank. "Lower customer demand, general economic weakness, and hesitant customer behaviour are depressing output," he added.

Input costs rose at the fastest pace in six months, driven by higher purchase prices, salaries, and fees for services. However, companies struggled to pass these costs onto customers, with output prices rising only marginally.

The outlook was further dampened by a sharp contraction in new business, the most significant since November 2023, particularly from domestic markets.

The composite PMI, which includes both services and manufacturing, fell to 45.1 in February from 47.6 in January, indicating the fastest contraction in private sector output since January 2024.

This was primarily driven by the services sector, while manufacturing showed a slightly softer decline.

Employment in the private sector fell at the quickest rate in 4-1/2 years, reflecting budget constraints and a cautious hiring approach amid subdued economic conditions.

(Reporting by Reuters)

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