France's services sector contracted sharply in May, with activity and new business falling at their steepest rates in five-and-a-half years. Rising inflationary pressures and geopolitical uncertainty are contributing to weakening business sentiment and raising recession concerns.
The sharp contraction in France's services sector, coupled with accelerating inflation and deteriorating business sentiment, signals significant economic headwinds and raises concerns about a potential recession in the second quarter.
France's services sector experienced a significant contraction in May, with the S&P Global France Services final Purchasing Managers' Index (PMI) falling to 44.3, an improvement from the preliminary estimate of 42.9 but still indicating a sharp downturn. The Composite PMI also fell to 44.9 from a preliminary 43.5. Both activity and new business levels decreased at their steepest rates in five-and-a-half years, and employment conditions deteriorated at their quickest pace since early last year. Inflationary pressures intensified, with input price inflation accelerating for the third consecutive month to its highest level in just over three years. French service providers responded by raising their charges at the quickest rate since June 2023, passing on cost increases to customers. S&P Global noted that the sector's vulnerability, exacerbated by geopolitical uncertainty and surging price pressures, is raising recession alarm bells and makes a contraction in GDP for the second quarter likely.
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