Inflation, energy crisis, geopolitical tensions… Despite a still uncertain context, the French economy should confirm its resilience in the first half of 2023. According to the latest INSEE economic report published this Wednesday, French GDP will progress modestly during the first three months of the year (+0.1%). It is certainly 0.1 point less than what the Statistical Institute predicted in its latest forecasts, but this eliminates the risk of recession.
This barely positive growth should come mainly from the modest rise in household consumption (+0.2%) and the commercial tertiary sector, whose activity should grow by 0.2% in the first quarter. “Activity would be slow in commerce while it would decline in transport services, penalized by strikes,” stresses INSEE, however. On the other hand, manufacturing production is likely to decrease (-0.2%), particularly in energy-intensive branches. “Regarding energy production (…), the growth of activity would slow down, after the maintenance of certain nuclear power plants and social movements,” adds the institute.
Excess growth of 0.6% at mid-year
Activity should show a little more dynamism in Q2, with GDP growth estimated at 0.2% thanks to the stabilization of manufacturing production and the acceleration of services (+0.3%). Although household consumption should grow moderately (+0.1%) in a context of persistent inflation, investment by non-financial companies should continue to grow (+0.5%, after +0.6%). Not to mention that exports should be a bit more dynamic thanks to new aeronautical and naval deliveries (+1%, after -0.2%).
In the end, the excess annual growth for 2023 would be 0.6% in the middle of the year. This means that GDP will progress by the same amount throughout the year if growth were zero in the third and fourth quarters. However, this forecast is “subject to many dangers, both national (duration and extent of strikes, for example) and international (geopolitical developments, effects of ongoing monetary tightening, stability of the financial system, etc.),” warns the Insee.
For its part, employment should slow down (+0.1% in the 1st and 2nd quarters) while the active population should continue to increase by 37,000 and 28,000 workers respectively, so the unemployment rate should remain at 7.2% until mid-2023.
Declining purchasing power despite ebbing inflation
Standing at 6.3% year-on-year in February, inflation should fall gradually to 5.4% in June, mainly thanks to the drop in energy inflation, which could be negative in the middle of the year (-1.3% in June). However, food prices should continue to rise (+15.4% year-on-year in June) despite falling world prices. “Indeed, last year’s shocks, including energy costs, would continue to push consumer prices up, as evidenced by recent trade negotiations between producers, suppliers and distributors,” notes INSEE. As for core inflation (excluding food and energy), it should continue to rise, reaching 6.4% in June.
Given the rise in prices, wages should continue to rise at the beginning of 2023 with an increase in average per capita wages of 0.9% in the first quarter and 1.4% in the second. “This dynamism would be driven by the consideration of consumer price increases in wage negotiations and by new increases in the minimum wage (automatic increase in January, by 1.8%, and probable additional increase, of at least 2 %, during spring)”. explains INSEE.
The social benefits would be supported by the revaluation of basic pensions on January 1 and by the payment of the 100% fuel subsidy to low-income households that use their vehicle to go to work. However, it is not enough to fully offset the price increase. Therefore, purchasing power per consumption unit should fall by 0.8% in both the 1st and 2nd quarters.
Source: BFM TV
