France’s services sector contracted in May, but at a slower pace than initially reported, according to an S&P Global survey released on Wednesday

However, business growth expectations dropped to their lowest level in five years, driven by uncertainty over trade tariffs.

The milder decline was due to smaller reductions in new business and employment, though demand, particularly in the domestic market, remained sluggish.

The final HCOB services Purchasing Managers Index (PMI) for France increased to 48.9 points in May from 47.3 in April, Reuters reports.

The index stayed below the 50-point mark that signals expansion, but it improved from the initial “flash” May reading of 47.4 points.

The final composite PMI for May, which includes both manufacturing and services sectors, increased to 49.3 points from 47.8 in April.

However, the survey’s gauge of business expectations in the services sector dropped to 50.2 points in May from 52.3 in April, reaching its lowest level in five years due to geopolitical tensions and economic uncertainty.

Businesses surveyed cited client hesitancy and budget limitations as major factors holding back activity.

“Overall market conditions remain constrained, with both domestic and foreign demand continuing to decline, though at a slower pace,” stated Hamburg Commercial Bank economist Jonas Feldhusen.

“While there are tentative signs of a recovery in market demand, optimism for improvement in the coming year has deteriorated further, suggesting that service providers remain unsettled by ongoing uncertainty,” he went on to add.

To boost sales, companies lowered prices at the quickest pace since February 2021, despite a slight increase in input cost inflation fuelled by wages and purchasing expenses.

In addition, employment fell again, though only slightly, as firms aimed to reduce costs amid weak growth outlooks.