France's Service Sector Slides Into Contraction: PMI Falls to 48.4 in January

France’s service industry has just entered contraction territory, signaling a notable shift in economic momentum heading into 2026. The latest Purchasing Managers’ Index (PMI) reading paints a picture of a sector struggling with weakening demand and muted business confidence at the outset of the year.

PMI Indicators Reveal Sharp Downturn

The final services PMI for January dropped to 48.4, representing a meaningful decline from December’s 50.1, according to S&P Global’s survey data. While this marks a slight improvement from the preliminary estimate of 47.9, the critical detail is that the index has now crossed below the 50 threshold—the dividing line between expansion and contraction—for the first time since October. The composite PMI, which blends manufacturing and services activity, similarly retreated to 49.1, amplifying concerns about broader economic weakness.

What makes this contraction particularly significant is the trigger: businesses aren’t responding to demand pressures alone. Rather, the downturn reflects a combination of declining new orders and a cautious stance among customers who are holding back on spending commitments.

Weak Demand and Conservative Business Sentiment

The underlying narrative from service sector participants reveals pronounced hesitation. Companies cited a marked shortage of new orders flowing through their pipelines, coupled with customer attitudes that remain skeptical and reserved. This conservative approach to expenditure suggests that despite any cyclical upswings, businesses and consumers are taking a wait-and-see posture.

Yet there’s an intriguing counterpoint: business expectations have experienced a sharp reversal upward. This divergence—poor current conditions alongside improved outlooks—points to specific factors reshaping sentiment. As noted by Jonas Feldhusen, an economist at Hamburg Commercial Bank, the improved expectations appear anchored to France’s approval of its 2026 budget framework this week. The resolution of the prolonged budget deadlock carries symbolic weight, as it signals potential relief from fiscal uncertainty and may kindle momentum in both consumer spending and investment activity.

Policy Resolution Offers Path to Recovery

The passage of the budget framework could function as a confidence catalyst, addressing a source of anxiety that has weighed on decision-making. If uncertainty about fiscal stability diminishes, businesses may transition from defensive positioning to more constructive planning. The contraction reflected in January’s PMI may thus represent a temporary trough rather than the beginning of a sustained downturn, contingent on whether the policy clarity translates into real economic stimulus.