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French service firms suffer steep downturn
French businesses suffered their worst downturn since the nadir of the recession, surveys revealed on Thursday, as Germany - the eurozone powerhouse - also slowed.

According to Markit's Purchasing Managers' Index, French services businesses - which encompass banks, hotels, and restaurants - last month experienced their steepest drop-off in activity since February 2009. The index for March stood at 41.3 - down from 43.7 in February - marking a 49-month low.

Amid economic uncertainty, clients were hesitant, leading to the sharpest decline in new work in four years. With manufacturers also reporting a decrease in new orders, the overall rate of contraction in new work across the private sector was the steepest since March 2009, according to Markit.

The squeeze on companies was clear as they reduced their charges further in a bid to stimulate new business, but input costs continued to rise at a solid pace.

Jack Kennedy, senior economist at Markit, said the latest "dire" figures for French services "simply add to the gloom enveloping the sector".

"Not only did business activity and incoming new work decline at the sharpest rates in at least four years, future expectations also turned pessimistic, implying that companies expect further deterioration over the year ahead," he added.

France's struggle was mirrored in Germany and across the eurozone as a whole. Although Germany's services sector still scraped an increase, growth was marginal, with March's PMI standing at 50.9 in March, down from 54.7 the previous month.

New business coming into German services organisations fell for the first time since November 2012. According to Markit, anecdotal evidence suggested that fragile confidence in the economic outlook had weighed on business and consumer spending.

Despite that, German companies remained optimistic for the rest of the year. More than twice as many service providers anticipate a rise in business activity over the next 12 months as those that forecast a decline. As a result, business sentiment was in positive territory for the fourth month running and reached its strongest since June 2011.

Tim Moore, another senior economist Markit, said of the German figures: "Modest German GDP growth is likely over the first quarter, but the clear message from monthly survey indicators is that Germany’s economic rebound is now diminishing rapidly."

Germany's near-stagnation weighed on the rest of the eurozone. Across the currency bloc, the services business activity index fell to 46.4 in March from 47.9 in February.

The PMI has spent all but one of the last 20 months rooted below the 50 threshold dividing growth from contration. Although Cyprus' €10bn bailout had made no immediate impact on the private economy, it still seemed to have had a disquieting effect.

"The recession is deepening once again as businesses report that they have become increasingly worried about the region's debt crisis and political instability," said Chris Williamson, chief economist at Markit.

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