France's Services Sector Soars to Two-Year High in August, Olympic Boost in Focus
In a recent report, France's services sector experienced its most robust expansion in over two years in August, propelled by the Olympics and a slight increase in demand. The HCOB France Services PMI Index surged to 55.0 in August from 50.1 in July, marking the largest upswing in over three years and reaching the highest level since May 2022. This growth indicates a positive trend in activity, with any reading above 50.0 indicating expansion.
Economist Norman Liebke at Hamburg Commercial Bank noted that the surge in activity was largely attributed to the Olympic Games. However, he cautioned that this level may not be sustainable, as the one-time boost was not reflected in other PMI sub-indices, with only business activity and new orders showing significant improvement.
Despite the overall growth, the pace of job creation slowed for the fourth consecutive month, with the employment subindex moving back towards the neutral threshold. Input cost inflation decreased to a 39-month low, but service providers raised their charges more aggressively, leading to an acceleration in output price inflation compared to July. Liebke highlighted that wages remain the primary source of cost inflation.
New business inflows saw a partial recovery in August after declines in June and July, primarily driven by domestic orders. However, new business from foreign customers decreased for the sixth consecutive month. Business confidence remained subdued, with political uncertainty dampening optimism. Backlogs of work decreased at the fastest rate since January, suggesting less strain on firms' capacity.
The HCOB France Composite PMI Index, which includes both manufacturing and services, rose to 53.1 in August from 49.1 in July, driven exclusively by the services sector's strong performance.
Analysis: The latest report on France's services sector paints a positive picture of the country's economic activity, with a significant boost from the Olympics. While the surge in growth is encouraging, concerns remain around sustainability and job creation. The increase in input costs and output prices also warrant attention, as they could impact consumer spending. Overall, the data indicates a mixed outlook for the French economy, with both opportunities and challenges ahead for investors and businesses alike.
