Service Sector Headwinds in France Offset by Growing Business Confidence

France’s service sector hit a rough patch in early 2026, marking a reversal from months of stability. According to data released by S&P Global, the service sector experienced a notable contraction last month, raising questions about economic momentum heading into the year. However, beneath these headline figures lies a more nuanced picture, with business leaders expressing cautious optimism about the road ahead.

January PMI Data Signals First Decline Since October

The Purchasing Managers’ Index for France’s service sector fell to 48.4 in January, down from December’s 50.1 reading. This dip marks the first time the service sector has slipped below the 50-point threshold—the dividing line between expansion and contraction—since October. The initial estimate had come in even weaker at 47.9 before the final figure was released. On a broader scale, the composite PMI, which tracks both manufacturing and services, declined to 49.1.

The pullback reflects real headwinds facing businesses. Orders have dried up noticeably, and customers are approaching spending decisions with considerable caution. These factors combined to create the first contraction in the service sector after months of relative stability.

Budget Resolution Fuels Optimism Despite Near-Term Challenges

What stands out most, however, is the marked shift in business expectations. Jonas Feldhusen, an economist at Hamburg Commercial Bank, highlighted this contrast: “The French service sector faced significant headwinds at the start of the year, with order books thin and demand cautious. Yet what’s particularly noteworthy is the dramatic improvement in business confidence about the outlook.”

This sentiment shift stems from a critical political development: France’s approval of the 2026 budget this week. According to market observers and policymakers, resolving this long-standing fiscal impasse should ease uncertainty that has been weighing on both consumption and investment decisions. Feldhusen noted that businesses believe the budget resolution will create conditions for renewed demand and spending growth in the coming months.

The disconnect between current data and future expectations reflects a market at an inflection point—challenged today but positioned for potential recovery if policy support materializes as expected.