France's services sector saw its largest decline in business activity since October 2023 in February, as demand sharply weakened, and employment dropped at its fastest pace since August 2020.

This is according to the findings from a business survey released on Wednesday.

The HCOB France Services PMI, compiled by S&P Global, fell to 45.3 in February from 48.2 in January, marking the sixth consecutive month below the 50.0 threshold that signals growth.

The downturn was fuelled by a notable drop in new orders, with businesses increasingly depending on their existing backlogs to maintain operations, Reuters news agency reports.

“The French services sector is in dire straits,” according to Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank.

“Lower customer demand, general economic weakness, and hesitant customer behaviour are depressing output,” he added.

Furthermore, input costs surged at the quickest rate in six months, primarily driven by increases in purchase prices, wages, and service fees.

Despite these rising costs, companies faced challenges in transferring these expenses to customers, leading to only a slight increase in output prices.

The overall outlook was further negatively affected by a significant drop in new business, marking the largest decline since November 2023, with the most substantial contraction observed in domestic markets.

In addition, the composite PMI, which encompasses both services and manufacturing, dropped to 45.1 in February from 47.6 in January, signalling the sharpest contraction in private sector output since January 2024.

This decline was mainly driven by the services sector, while the manufacturing sector experienced a more moderate downturn.

Moreover, private sector employment dropped at the fastest pace in 4.5 years, driven by budget limitations and a cautious approach to hiring in light of weak economic conditions.