After the spring rebound, French growth lacks “resilience”

The National Institute of Statistics (Insee) raised its growth forecast for 0,9 to 2023% on Thursday, compared to 0,6% previously, getting closer to the 1% increase expected by the government.

This revision follows a second quarter which was distinguished by an unexpected rebound of 0,5% in gross domestic product (GDP) thanks to foreign trade.

This improvement would, however, be followed by a clear slowdown, with an increase in GDP of 0,1% in the third quarter and 0,2% in the fourth, in a "unpromising" international environment according to INSEE.

It is “positive but modest growth”, commented Julien Pouget, head of the INSEE economic department, to the press.

So much so that annual growth would remain well below that of 2,5% recorded in 2022, which was still in the wake of the post-Covid recovery.

On the price front, INSEE forecasts that inflation will fall to 4,2% year-on-year in December, after having exceeded 6% at the start of the year. It would stand at 5% on an annual average (compared to 5,2% in 2022).

The trend also applies to food products, the increase of which would reach 7,2% year-on-year in December. In this sector, prices had recorded double-digit surges, approaching 16% year-on-year in March and encouraging households to consume less.

“A little air”

“The slowdown in prices brings a little breathing room to consumers (...) and businesses”, which are benefiting in particular from the decline in raw material prices, explained Julien Pouget.

“But (there is) not much resilience because inflation remains high for households and (...) interest rates also remain high,” he added.

In the second half, the slowdown in inflation would thus give a slight boost to household consumption, the traditional engine of French growth.

But as prices are not falling, consumers continue to be cautious.

Questioned in June by INSEE, 47% of households declared having changed their food consumption habits due to inflation, i.e. 10 points more in six months: lower quantities, change in product ranges, diversification of stores to groceries.

“They remain rather inclined to save when they can,” according to Julien Pouget.

This situation has pushed the government to plan a law in October to advance commercial negotiations between agri-food manufacturers and distributors with the objective of reducing labels on shelves.

At the end of August, he announced that he had already obtained a price reduction or freeze on 5.000 products.

In addition to the slight rebound in consumption, other factors should slightly support growth in the second half of the year, on the production side this time, particularly in the automobile sector and electricity production.

At the same time, exports should slow down in the second half while the sharp rise in interest rates aimed at cooling prices would penalize investments by businesses and households, particularly in construction.

The European Central Bank (ECB) is due to meet on September 14 to decide whether or not to continue the rate hike carried out forcefully since the summer of 2022 to curb inflation and bring it back towards 2% by 2025, a level perceived as optimal.

The leading contributor to inflation after Russia's invasion of Ukraine, before being supplanted by food, energy prices should start to rise again by the end of the year (7,3, XNUMX%), according to INSEE.

In particular, motorists will no longer benefit this fall from a rebate at the pump in force a year earlier.

Like INSEE, the Banque de France also plans to raise its annual growth forecast, currently 0,7%.

Despite the ongoing slowdown in the economy, its governor François Villeroy de Galhau said on Wednesday that he did not see "any sign of a generalized turnaround in activity" nor any "risk of recession".