Zero growth expected in the first quarter, “recovery is long overdue”

With zero growth anticipated in the first quarter, “the recovery is slow to come” in France according to INSEE, which on the other hand raised its growth forecast for the second quarter to 0.3% on Thursday. “Ultimately, the progression of activity would be limited to the first half of the year,” analyzes the National Institute of Statistics and Economic Studies in its latest economic report.

“In the first quarter, it would remain at a standstill” – while INSEE had so far expected growth of 0.2% – but it would “rebound (0.3% compared to 0.2% expected until now). ‘here)’ in the second trimester. “The first data available for January 2024”, particularly in terms of industrial production and household consumption, “are poorly oriented”. Growth is particularly “penalized by occasional shutdowns in industry, particularly in refining and the automobile industry,” according to INSEE. “The recovery is slow,” asserts the institution, and “the improvement in consumption would only be reflected in growth in the spring.”

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At mid-year, INSEE expects growth of 0.5%. This figure corresponds to what the annual variation in GDP would be in 2024 if growth proves to be zero in the third and fourth quarters. The government is counting on 1% growth for the year 2024, an objective recently revised downwards but still slightly more ambitious than the forecast of the Bank of France (0.8%).

Good news, however, on the price side: “In France, the inflationary episode is fading,” says INSEE. “The consumer price index fell to 2.9% over one year in February 2024 (according to the provisional estimate, to be confirmed on Friday) and this decline would continue at 2.6% in June”, therefore getting closer of the 2% inflation target of the European Central Bank (ECB).

“The composition of inflation has, however, changed significantly,” asserts the Institute: “food and manufactured product prices tend to stabilize and inflation is now mainly driven by service prices,” where “companies pass on to their customers the past increase in their salary costs. This disinflation would lead to “gains in purchasing power”, which “would encourage a relative rebound in household consumption”, predicts INSEE, particularly with regard to food purchases, which “would timidly begin to recover” after “two years of unprecedented decline”, and accommodation and catering expenses.