France’s services sector posted its third straight month of decline, according to the latest HCOB Purchasing Managers’ Index (PMI) data, signalling a continued deterioration in activity across the sector since the Olympics-fuelled recovery over the summer. The drop in output was the sharpest since January.
with factors such as weak customer demand, uncertainty and budget constraints reportedly holding back businesses. Notably, growth expectations fell to their lowest in four-and-a-half years, while input price pressures intensified due to rising wage costs.
The seasonally adjusted HCOB France Services Business Activity Index – which measures changes in the volume of business activity compared to the previous month – fell below the 50.0 threshold for the third straight month in November, indicating a continued contraction in services output across France. At 46.9, the headline index fell from 49.2 in October, marking a faster rate of decline and the most pronounced since January.
The slump in activity in November coincided with a faster deterioration in new business, according to the latest survey results. Respondents pointed to weak demand, as well as hesitation among customers to spend, uncertainty and budget constraints. These factors led to new business volumes falling at the fastest pace in a year during the penultimate month of 2024.
Sales to non-domestic customers were a significant drag on overall new business levels during November. New export orders recorded the sharpest decline in exactly four years. Concerns that the current downward trend in sales would continue contributed to a marked decline in business confidence in the middle of the fourth quarter.
On the back of a 26-month high in September, the HCOB Future Activity Index fell again in November to its lowest reading since May 2020. Anecdotal evidence suggests that political uncertainty was also linked to firms’ pessimistic assessment of the 12-month outlook.
Slowdown in demand in the fourth quarter
Commenting on the PMI data, Hamburg economist at Hamburg Commerzbank said: “The positive signals from the HCOB PMI for the French services sector seen over the summer, partly due to the Olympic Games, are now a thing of the past. This sector is also suffering from political uncertainty. Demand fell sharply in November, sending a negative signal for early 2025. The HCOB PMIs also suggest that international orders are contracting more significantly than domestic orders.
with demand for French services from abroad falling sharply in four years in November.
Despite the significant slowdown in demand in Q4, input prices continue to rise. Firms are reporting higher labour costs, which are being attributed to increased hiring and higher salaries. Trade union activity, strong labour protections and a shortage of skilled workers may also be factors here. Employment rose slightly in November compared to the previous month, but if the trend continues with demand remaining low, the employment situation could reverse into layoffs at the beginning of the year 2025.
However, the weakness in France appears to be somewhat self-imposed, with the political situation partly responsible for French service companies’ low outlook on the future. Since President Macron called early elections in June, the HCOB Future Activity Index has fallen by ten points, hitting a four-and-a-half-year low. This shows how fragile business sentiment is against a backdrop of further political uncertainty should the minority government collapse due to budget deadlock. Combined with the general economic situation and slowing demand, it is no wonder that business confidence is low.
Fastest drop in French economic activity since January
The French HCOB Composite Output Purchasing Managers’ Index (PMI) – a weighted average of the HCOB France Industrial Output Index (IIP) and the HCOB France Services Business Activity Index (SBI) – fell to 45.9 in November, from 48.1 in October, indicating the fastest decline in private sector activity levels since January. Both manufacturing and services saw sharper declines in output in November.
This was also a trend seen in total new orders, which saw their sharpest contraction in four years. International customer demand exerted a particularly strong drag on overall sales performance.
with private sector new export orders falling at the fastest pace since May 2020. Pending work subsequently fell in November, with both monitored sectors making stronger progress in arrears.
Employment trends diverged, however, with job creation in services firms narrowly offsetting cuts in manufacturers. Private sector employment growth was marginal but the fastest since June. Employment came despite business confidence falling to a 54-month low. The overall rate of input cost inflation also rose to a three-month high.
but there was a slower increase in selling costs.
However, despite November marking the seventh consecutive month that the level of work in progress fell, suggesting excess capacity in the French services sector, employment rose. This was an improvement since October when workforce numbers were largely unchanged. However, the rate of job creation was only marginal.
As for business operating costs, the latest survey data showed input prices rose in November. Panelists pointed to wage pressures as a source of inflation. Business costs rose at the fastest pace in three months, but were weaker than the series average. Efforts to pass on higher costs to customers supported a second straight monthly rise in prices charged for French services.
