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French service sector activity subdued in Dec -final PMI

Restaurant in Paris during COVID-19

PARIS (Reuters) - Activity in France's dominant services sector remained subdued last month, a survey showed on Wednesday, as inflation continued to weigh on demand, adding to fears the euro zone's second-biggest economy could be headed towards a recession.

"Overall, the latest survey data round off the worst quarterly performance in the sector since early 2021 and will fuel the calls of an impending recession...", said Joe Hayes, senior economist at S&P Global which compiles the survey.

The final purchasing managers index (PMI) for France's services sector reached 49.5 points in December, slightly up from 49.3 points in November. The final December figure came in above a flash estimate of 48.1.

Any reading above 50 points marks an expansion in activity, while a number below 50 shows a contraction.

High interest rates and inflation continued to drag down demand, S&P Global said, although there were signs that companies were softening their pricing strategies as output price inflation eased.

"Higher interest rates are slowing activity in sectors sensitive to changes in borrowing costs such as real estate, while persistent inflation continues to squeeze real incomes and is eroding purchasing power," said Hayes.

Purchasing managers also reported a contraction in new business from international clients for the seventh month in a row, the survey showed.

Last month French Finance Minister Bruno Le Maire said the government still projected positive growth in 2023 despite business worries.

S&P Global's final composite PMI for December - which includes both the services and manufacturing sectors - stood at 49.1 points, up slightly from 48.7 in the previous month.

(Reporting by Tassilo Hummel; Editing by Susan Fenton)