Insights 
VT 
France’s May final services PMI was revised to 48.9 from an initial 47.4. The previous reading was 47.3. The composite PMI also improved to 49.3 from a preliminary 48.0, with the prior data showing 47.8.
The higher PMI suggests a slower contraction in business activity. The decrease in new orders and employment was less pronounced compared to earlier months, indicating the private sector may soon leave contraction. However, the composite PMI is still below the growth threshold.
Current Market Conditions
Market conditions remain tight as demand, both domestic and foreign, continues to fall, though at a slower pace. While there are slight indications of increasing demand, optimism for future improvement has waned, causing concern among service providers due to ongoing uncertainties.
Profit margins in the service sector decreased in May due to rising input cost inflation, largely from wage pressures. Meanwhile, output prices fell, showing companies struggled to pass the increased costs to customers. This pricing scenario may influence the European Central Bank (ECB) to consider additional rate cuts, with possible two more reductions anticipated this year.
The upward revision in both the French services and composite PMIs shows a modest shift in sentiment, hinting at a business environment that remains challenging but is no longer deteriorating at the same rate. A figure below 50 still points to contraction, but the narrowing gap suggests contraction is easing. The data implies businesses are not yet expanding, though the speed of retrenchment has softened somewhat.
Potential Turning Point
When new orders and employment slow their decline, it often signals that we’re nearing a turning point. Morale may still be cautious, but a stabilisation phase could be in its early stages. That said, the figures remain under the 50-mark, which keeps the possibility of a resurgence in weakness very much alive. The adjustments in these indicators don’t paint an encouraging picture on their own, but they do offer a view that momentum isn’t worsening.
We’re seeing that price-setting power in services is being squeezed. On one hand, input costs—mainly labour-related—keep rising. On the other, output prices are slipping, which tells us firms are unable to pass higher costs along to customers. This compression of margins is an important signal, particularly when interpreting forward-looking monetary policy activity.
The mismatch between costs and prices could provide justification for loosening from the ECB’s side, particularly if inflation pressures across the bloc continue to come from places that rate hikes have limited effectiveness against, like wages. Speaking realistically, if output prices continue to show weakness, and wage inflation remains sticky, a clearer case forms for a dovish tilt during the latter part of the year.
Although some providers are hoping for better demand, the feedback remains muted. With forward-looking expectations subdued and confidence not yet returning in full force, we’re treating these revisions as directionally helpful, rather than defining. The trends still carry the weight of uncertainty, and there’s little to suggest a firm rebound is around the corner.
What matters now is how activity holds in June and whether these contractions slow into neutral territory. We’re watching pricing mechanisms closely, as this will tell us more about how companies are handling cost stress without cutting deeper into staffing or investments. Where margins worsen, monetary support may be more likely—if not immediately, then over the next few quarters.
