Data from a survey released on Wednesday indicates France's services sector experienced its most severe contraction in nearly five and a half years during May, hit by a dual impact of weakening demand and rising operational costs due to conflict.

The final reading for the S&P Global France Services Purchasing Managers' Index (PMI) fell to 44.3 in May from 46.5 in April. A PMI reading below 50 signifies a contraction in business activity, while a figure above 50 indicates expansion.

This final figure was an improvement over the preliminary estimate of 42.9, yet it still represents the lowest reading since November 2020, when the global economy was severely impacted by the COVID-19 pandemic.

The final Composite PMI for France in May, which covers both the services and manufacturing sectors, declined to 44.9 from 47.6. This reading, higher than the flash estimate of 43.5, marks a 28-month low.

Joe Hayes, Chief Economist at S&P Global Market Intelligence, commented, "France's services sector, which was already showing signs of weakness before the outbreak of conflict, was dealt another severe blow in May. The PMI readings for business activity and new orders deteriorated further, reaching levels that historically signal a risk of economic recession. Geopolitical uncertainty is hampering business decision-making, while soaring prices continue to erode household purchasing power. In the current environment, a recovery for the French economy appears challenging, with a contraction in second-quarter GDP highly probable."