France’s final services PMI for July was recorded at 48.5, revised down from a preliminary 49.7, HCOB data shows. This decline was also mirrored in the composite PMI, which fell to 48.6 from an initial 49.6 and a previous 49.2.
The French services sector experienced a downturn in July, impacted by weakening demand and inadequate staffing. Although GDP growth was at 0.3% quarter-on-quarter, mainly due to inventory changes, there are concerns about sustaining this growth.
Decline In Business Expectations
Recent figures show the French service sector neared growth thresholds, yet experienced a moderate decline in July. Persistent weak demand conditions and delayed decision-making due to political uncertainty and geopolitical trade tensions have affected business expectations for the next year.
July also saw decreased backlogs and reduced forward-looking business expectations, contributing to a challenging environment in the services sector. Employment has suffered, with fewer renewed temporary contracts and voluntary departures not replaced by new hires.
On pricing, input costs continued to rise moderately due to higher wages and intermediate goods prices. However, output price inflation stayed contained, reflecting cost pressures and attempts to bolster revenue growth.
The revision of France’s July services PMI down to 48.5 signals a contraction and a weak start to the third quarter. This data is concerning because the services sector accounts for the majority of the French economy. We see this weakness reflected in recent labor statistics, with the unemployment rate having edged up to 7.7% in the second quarter of 2025, reversing some of the earlier gains.
Market Outlook And Strategies
Given the weakening demand and poor business expectations, we anticipate downward pressure on French equities. Traders should consider protective strategies, such as buying put options on the CAC 40 index. This position would profit if the index declines in the coming weeks as corporate earnings forecasts are likely to be revised lower.
The slowdown in the Eurozone’s second-largest economy will likely weigh on the euro. As we look at the EUR/USD pair, which has already fallen below 1.07 in late July 2025, further downside seems probable. The European Central Bank may be forced to adopt a more cautious tone, especially when contrasted with the Federal Reserve’s recent hawkish commentary.
Conversely, this economic cooling could be supportive for French government bonds. As growth fears outweigh inflation concerns, demand for the safety of sovereign debt may increase, pushing yields down. We are watching the spread between the French 10-year OAT and the German Bund, which had widened during the political uncertainty following the snap elections in early 2025; it may now tighten if recession fears dominate.
The combination of political uncertainty and a deteriorating economic outlook suggests higher market volatility ahead. We saw the VSTOXX, the Eurozone’s volatility benchmark, spike during the market jitters in June 2025. Traders might consider buying call options on the VSTOXX as a hedge against unexpected market swings in the coming month.
