France’s services sector experienced a milder contraction in June than initially anticipated, despite political turbulence and budgetary concerns.

The country’s services sector, which contracted in June, performed slightly better than forecast, according to the final purchasing managers index (PMI) from HCOB France and S&P Global. 

Indeed, the PMI stood at 49.6 last month, up from May's 49.3 figure and higher than the flash estimate of 48.8.

The 50-mark divides growth from contraction.

Despite ongoing political uncertainty ahead of snap parliamentary elections, there was a slight improvement. Yet financial investors are concerned about France's ability to handle its budget deficit as yields on sovereign debt rise.

Meanwhile, the composite PMI, which integrates services and manufacturing data, declined to 48.8 in June from 48.9 in May.

Investors are closely monitoring France's political landscape with the upcoming parliamentary elections. The significant gains made by the far-right National Rally party in the first round have added to the uncertainty.

Investors are concerned about potential economic instability and are particularly focused on how a new government might address financial issues such as the budget deficit and sovereign debt yields, Finimize reports.

Norman Liebke, Economist at Hamburg at Hamburg Commercial Bank, said of this latest PMI data: “Election uncertainty stalled the French services sector in June. The HCOB Business Activity Index showed a little improvement compared to the previous month but still stayed below 50, signalling contraction. Some panel members linked the drop in business activity to election-related uncertainty. It’s thinkable that the upcoming elections were the decisive factor, particularly because new orders have suddenly dropped.”

He added: “Service prices inflation continues to ease but still poses a risk. The latest rise in input prices was historically high, with companies noting greater salary costs and raw material price increases. On the other hand, output prices in the French service sector edged further towards the neutral threshold, meaning that companies did not fully pass on higher input costs to clients. According to anecdotal evidence, some companies were able to offer discounts due to lower interest rates.”