French Economy in Recession

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France’s private sector suffered its steepest contraction in nearly a year and a half in February.

This as a worsening slump in the services sector outweighed signs of stabilisation in manufacturing, a closely watched survey showed on Wednesday.

The HCOB Flash France Composite PMI, compiled by S&P Global, fell to 44.5 from 47.6 in January, marking a 17-month low and extending the downturn to six consecutive months. A reading below 50 indicates contraction.

The consensus expected a reading of 48, confirming this to be a notable negative shock for markets.

“The French economy is in recession with no end in sight,” said Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank. “The latest decline is particularly concerning as it stems from the services sector, which had previously shown more resilience.”

The services sector bore the brunt of the decline, with its PMI falling to 44.5 from 48.2, signalling its sharpest drop since September 2023. Businesses cited weak demand, low foot traffic, and cautious investment sentiment as key drags on activity.

Meanwhile, manufacturing showed slight improvement, with the PMI rising to 45.5 from 45.0 and output hitting a seven-month high at 44.6. However, demand remained weak, and new orders continued to decline, albeit at a slower pace.

Employment in the private sector fell at the fastest rate since August 2020, with companies reducing staff through non-renewal of temporary contracts and hiring freezes.

Adding to business challenges, input costs rose at the fastest pace in six months, but firms struggled to pass them on due to competitive pressures, leading to only marginal price increases for consumers.

"Despite some political stability following the 2025 budget approval, economic uncertainty persists," Chaudhry added. "Firms remain cautious, and expectations for future activity are well below historical norms."

With demand faltering and cost pressures mounting, France’s economic outlook remains weak, raising concerns over a prolonged downturn in the eurozone’s second-largest economy.