2023-12-11 19:00:00
The French economy narrowly avoided the dark scenario of recession. After a negative third quarter, gross domestic product (GDP) growth should increase very slightly to +0.1% at the end of the year. The Banque de France has in fact revised downwards its growth forecasts for the last quarter, initially forecast between 0.1% and 0.2%. « Activity should hold up in the fourth quarter, thanks to services,” analyzed Olivier Garnier, director general of the central bank, during a press briefing.
As a reminder, technical recession corresponds to two consecutive quarters of declining growth. With the slowdown in activity over the last six months of the year, economists could revise their annual figures downward. They will be revealed at the beginning of next week.
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In the meantime, economists and business circles should carefully scrutinize the decision of the European Central Bank (ECB) scheduled for Thursday, following the Fed meetings. ECB governors must decide whether or not to maintain rates. In the euro zone, inflation has certainly slowed for several months. But the Frankfurt institution has not ruled out maintaining its rates at a high level for several more months.
« The phase of forced monetary tightening that we have been undergoing for two years is over. The next phase is to pivot in the direction of easing. This cannot be long before mid-2024,” said Oddo BHF economist, Bruno Cavalier, in a recent note.
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Services limit damage, industry and services in the red
The tertiary economy is doing well. In detail, market services recorded an increase of +0.2% in the last quarter compared to the previous quarter. For their part, non-market services are close to stagnation (+0.1%). How can we explain this relative resistance of services?
« The services sector is less cyclical and less sensitive to interest rates and the cost of credit than industry and construction », explains to The Tribune Olivier Garnier.
In contrast to services, industry (-0.1%) and construction (-0.3%) are still in the red. After a strong rebound in 2021, the French industrial fabric has suffered greatly from the surge in energy and raw materials prices. After this supply shock, manufacturers are faced with a collapse in demand. “ Industrial order books are below their 10-year averages », underlines Olivier Garnier. As for construction, professionals in the sector also recorded a plunge in orders, particularly in structural work with demand at its lowest since 2014.
Storms caused activity to decline in exposed areas
In November, several extreme weather events hit the west and the north of France. Highly exposed, these regions suffered violent winds and particularly devastating floods. As a result, thousands of homes and businesses suffered the full brunt of power outages and property damage. During their monthly economic survey, economists questioned companies on the repercussions of storms Domingos and Ciaran.
Ultimately, it is managers in automobile repair, construction and some sectors of industry who are most affected.
“The bad weather has caused numerous construction site delays, penalizing activity in the building sector with a negative effect on the demand for construction materials,” explain the economic forecasters.
Conversely, service companies are, unsurprisingly, relatively spared.
The threat of recession becomes clearer
More broadly in Europe, the threat of recession is growing. Germany is struggling to emerge from the economic slump. Entangled in a protracted budgetary crisis, the ruling coalition is struggling to find a credible way out. In November, the constitutional court in Karlsruhe pointed out the budgetary tricks of the federal state to reduce deficits. Added to this is a prolonged recession. The industry, highly exposed to the energy crisis in 2022 and 2023, is going through a brutal crisis.
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Given the weight of the German economy in Europe, the continuation of this lethargy could have deleterious repercussions on the entire economy of the Old Continent. In Italy, economic growth is also suffering, at 0.1% in the third quarter, after a decline of -0.4% in the second quarter. The statistics institute Istat is now counting on an increase of 0.7% over the whole of 2023. But the Italian economy, heavily in debt, still has to contend with an aging demographic and sluggish productivity.
On the budgetary level, the failure of European states to reach a new agreement on the reform of the stability pact would mean a return to the rules (3% deficit and 60% debt not to be exceeded) of the Maastricht Treaty from from January 1st. In other words, States should once again commit to meeting the objectives of rapid rebalancing of public finances, instead of investing in the ecological transition and reindustrialization. A prospect that France and part of Europe absolutely want to avoid.
Stability pact: agreement in sight in Europe before the end of the year, but certain states remain to be convinced
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