French services PMI returns to growth in September, but demand stays weak

In September, French services activity emerged from contraction and returned to growth for the first time this year, according to the S&P Global France Services PMI. The indicator climbed to 51.2 from 48 in August, crossing the critical 50 threshold that separates growth from decline for the first time since December. However, the recovery remains fragile as weak demand, ongoing job cuts, and rising prices present challenges to the development.

Economist Joe Hayes of S&P Global Market Intelligence cautioned that the rebound may not be sustained, citing weak underlying demand. The increase in September's PMI could be partly attributed to businesses recovering from the disruption caused by extreme heat in August. New business activity slightly declined in September, though the drop was smaller than in August. Export orders continued their 14th consecutive month of decline, with the rate of decline slowing to the lowest since November.

Services firms also downsized their workforces for a fifth consecutive month, although the decline was minimal, marking the smallest reduction since June. Backlogs of work increased, indicating potential capacity constraints. Price hikes by services firms accelerated to their fastest rate in over three years as companies sought to cover higher costs and maintain profitability. These firms attributed the price increases to rising fuel, computer hardware, and raw-material costs.

Although business confidence remained positive, it declined from August, with firms expressing their least optimistic outlook about the year ahead since May. Concerns over higher interest rates and the upcoming election contributed to this sentiment. The France Composite PMI rose to 51.1 in September from 48.5 in August, signaling a return to growth across the private sector. However, the survey revealed weaker demand, falling employment, and rapid price pressures.