Market Analysis

France's services sector experienced its strongest growth in over two years this August, driven by the Olympics and a modest increase in demand, according to a business survey released on Wednesday.

The HCOB France Services PMI Index surged to 55.0 in August, up from 50.1 in July, marking the largest increase in over three years and reaching its highest level since May 2022. A reading above 50.0 indicates expansion in activity.

Norman Liebke, an economist at Hamburg Commercial Bank, attributed the rise to the Olympic Games, but cautioned, "This level is not sustainable." Liebke noted that the surge was primarily reflected in business activity and new orders, while other PMI sub-indices did not show similar gains.

Despite the overall growth, job creation continued to slow for the fourth month in a row, with the employment subindex nearing the neutral level.

Input cost inflation dropped to its lowest in 39 months, yet service providers increased their charges at a faster rate, with output price inflation picking up compared to July. "Wages remain the primary driver of cost inflation," Liebke added.

New business inflows saw a partial recovery in August after declines in June and July. The increase in new orders was mainly driven by domestic demand, as new business from foreign customers declined for the sixth consecutive month.

Business confidence remained low, with political uncertainty weighing on optimism. Backlogs of work fell at the fastest pace since January, indicating reduced pressure on firms' capacity.

The HCOB France Composite PMI Index, which includes both manufacturing and services, rose to 53.1 in August from 49.1 in July, solely due to the strong performance of the services sector.

Paraphrasing text from "Reuters" all rights reserved by the original author.