According to a recent S&P Global survey released on Friday, France's services sector contracted further in January due to weak demand and political uncertainty.
The HCOB Flash Services PMI Business Activity Index dropped to 48.9 from December's 49.3, falling short of expectations and below the 50.0 threshold indicative of growth.
In contrast, the Composite PMI Output Index for the wider French private sector improved slightly to 48.3 from 47.5, exceeding projections, while the manufacturing activity index rose to 45.3 from 41.9, surpassing forecasts.
Commenting on the situation, Economist Tariq Kamal Chaudhry from Hamburg Commercial Bank noted, "France's economy disappoints at the start of 2025... It is primarily the political crisis that is economically paralysing the country." Chaudhry added, "The next budget vote will decide not only the fate of the (PM) Bayrou government but also the economic stability of the country."
Business confidence took a hit in January, with companies perceiving the outlook for the next 12 months as largely neutral compared to slight optimism in the prior month. Additionally, survey results indicated the highest rate of job cuts since October 2020.
Also, the French official statistics agency, INSEE, reported on Thursday a decline in French business confidence for January.
Forecasting a slow but steady economic growth in the first half of 2025, INSEE warned that a political showdown over the 2025 budget could weigh on consumers and businesses in France.