High inflation weighs on economic activity in France

2023-04-28 15:56:21

Posted Apr 28, 2023, 7:53 AMUpdated on Apr 28, 2023, 5:56 PM

France is settling into slow-speed growth. Over the first three months of the year, GDP rose by 0.2%, according to the first estimate from INSEE published this Friday morning. A rate higher than that recorded in the last quarter of 2022 during which economic activity finally stagnated (against an increase of 0.1% initially announced). For the statistics institute, the growth overhang for the year would amount to 0.4% in the first quarter.

This is enough to reassure the Minister of the Economy, Bruno Le Maire, who expects growth of 1% in 2023. The published figures attest to the “solidity” of the French economy whose “fundamentals are holding up” and which continues to “create jobs” has also welcomed the tenant of Bercy.

Always inflation

In April, however, the pace of inflation accelerated to 5.9% over one year (against 5.7% in March) still driven by food even if prices slowed down a little (+14.9 % after +15.9%) and services (+3.2%). Over one month, however, the rise in prices slowed to 0.6%, after +0.9% in March. The government

ment aims for a decline in inflation in the second half to a revised annual average of 4.9% in the stability pact which will be sent by the government to Brussels.

Looking closely, the picture drawn by INSEE statistics highlights the caution of households in this context of still high inflation.

Between January and March 2023, “domestic demand contributes negatively to growth”, thus notes INSEE. In fact, household consumption, the main driver of growth in France, stalled over the period, and even fell by 1.3% in March. Faced with the waltz of labels, food purchases fell again by 2.3% after having already unscrewed by 4.7% last year. Only spending on “services” – in particular accommodation and catering – seems to save through the restrictions imposed by the French (+0.6%).

Moreover, “for the sixth

consecutive quarter” their investments, highly correlated to the property market, also fell back (-1.4%).

Increase in industrial production

On the business side, industrial production, on the other hand, rose by 0.4%. Supported by the easing of supply difficulties, sectors such as the automobile or aeronautics have started to move forward again. Energy production has also rebounded with the reopening of nuclear power plants. The construction sector, on the other hand, continued to slump. The effects of the rise in interest rates are also beginning to be visible on corporate investment. After sustaining growth last year, it is showing the first signs of losing momentum (+0.1%).

While inventories had experienced their strongest increase in fifty years in 2022, companies also began to destock in the first quarter. This weighs for 0.3 points on growth, specifies INSEE. If the black scenario of a disruption of energy supplies this winter has not occurred, business leaders now fear a weakening in demand as shown by the latest business climate.

Manufacturers, on the other hand, observe an improvement in order books from abroad. What foreign trade reflects. In the first quarter, it made a positive contribution to GDP growth thanks to falling imports (-0.6%) and more dynamic exports (+1.1%).