French business activity contracts for 6th month as energy costs hit demand

France's private sector activity contracted for a sixth consecutive month in June as higher energy costs and weaker consumer demand continued to weigh on the eurozone's second-largest economy, according to data released Tuesday.

The S&P Global Composite Purchasing Managers' Index (PMI) rose to 47.6 in June from 44.9 in May, beating market expectations of 46 but remaining below the 50-point threshold that separates expansion from contraction.

The contraction was driven mainly by the services sector, which stayed in negative territory despite improving from the previous month. Manufacturing activity, however, returned to expansion, with its index rising above 50.

S&P Global said stronger inflationary pressures since the start of the Middle East conflict had weakened purchasing power and reduced demand across France.

The figures add to signs that the French economy remains fragile after already facing weak growth and rising unemployment before the latest energy shock.

France's central bank expects the country to narrowly avoid recession, while the national statistics agency Insee has warned that consumer spending, the main driver of growth, is likely to remain weak as inflation spreads beyond energy.

Official forecasts put France's gross domestic product growth at between 0.5% and 0.7% this year, which would mark the slowest annual expansion since 2012, excluding the pandemic period.

The slowdown is also complicating government efforts to reduce the budget deficit. The Finance Ministry estimates that the Middle East conflict could worsen public finances by at least €6 billion ($6.9 billion).

Separate data from Insee showed that manufacturing confidence fell by two points to 100 in June, surprising analysts as companies gave weaker assessments of past production and remained cautious about future output.