France’s services sector shrank more rapidly in July, as political instability and subdued demand continued to dampen business confidence, according to a survey released by S&P Global on Tuesday.

The HCOB France Services Purchasing Managers’ Index (PMI), which tracks month-over-month changes in business activity, dropped to 48.5 in July, down from 49.6 in June.

This marks the sharpest pace of decline since April and signals a deepening slowdown in the sector.

A PMI reading below the neutral 50 threshold points to contraction, highlighting ongoing challenges facing France’s service-driven economy amid an uncertain political and economic climate.

The survey pointed to a significant drop in new business, primarily due to weakening demand in the domestic market, Reuters news agency reports.

Outlook for the year ahead also worsened considerably, with business confidence falling to its lowest level in six months.

Furthermore, employment in the services sector continued to decline, marking a persistent trend into the third quarter.

The data showed that temporary contracts were being renewed less frequently, and many voluntary staff departures were not being replaced, indicating growing caution among employers amid economic uncertainty.

“The slowdown in business activity is increasingly reflected in capacity utilisation. Backlogs of work declined, and forward-looking expectations worsened significantly,” according to Hamburg Commercial Bank economist Jonas Feldhusen.

Although the sector contracted, input cost inflation stayed relatively subdued. However, service providers slightly increased their own prices, citing pressure from competition.

Meanwhile, the composite PMI, which reflects activity across both the manufacturing and services sectors, fell to 48.6 in July from 49.2 in June. This indicates a moderate but quicker decline in overall private sector business activity in France.

Overall, the data points to weak economic momentum in the short term, heightening concerns about the durability of France’s current growth trajectory.