The effects of tighter monetary policy are starting to trickle down to the economy. In France, activity has thus frankly slowed down this year without, however, breaking off. According to the latest INSEE forecasts, after a very modest 0.1 %, revised downwards, in the second quarter, growth will continue until the end of the year on its way at this sluggish pace: 0.1 % in the third, before 0.2 % in the fourth. Gross domestic product (GDP) would then increase by 0.6% in 2023, after 2.5% in 2022, a good notch below the 1% hoped for by the government.
“The business climate has been eroding for several months, noted Julien Pouget, the head of the economic situation for the institute. This deterioration reflects more marked concerns on the demand side. While the supply constraints are rising one after the other, it is indeed consumption that is flagging.
Traditionally the primary driver of French growth, it is expected to fall by 0.2% this year due in particular to the shock of inflation. Price increases should, however, begin to slow in the second half. In May, inflation, at 5.1%, fell for the first time from its plateau, which was around 6%. INSEE expects a landing at 4.4% at the end of the year.
In this environment, demand “would dip in the spring due to a further decline in food consumption, then only pick up slightly in the second half of the year”, details INSEE. Households are tightening their belts more out of concern than out of necessity, as illustrated by the collapse of their confidence indicator, but also by the high level of the savings rate which continues to be around 18%, against an average of 15% before the health crisis. According to INSEE forecasts, purchasing power would nevertheless increase overall by 0.5% during the year. As an annual average, the average per capita salary (SMPT) in the non-agricultural market sectors should increase by 5.1%.
Wages are holding up, because the economic slowdown would not affect employment. Insee thus does not share the diagnosis of the Banque de France, which recently bet on an increase in unemployment. For the institute, the hexagonal unemployment rate would remain, until the end of the year, around 7.2%.
On the business side, the landscape appears fractured. Construction, in a context of high interest rates which is hampering household real estate projects, is unsurprisingly marking time. Its activity would decrease by nearly 1% per quarter. In detail, industry would run out of steam after a first quarter on the wheel while services would continue to grow, without brilliance. In this gloomy environment, it is foreign trade that would become the main contributor to French growth.
