Olympic effect expected on French growth in the third quarter

The INSEE and the Banque de France expect growth to reach 0,4% this summer compared to the spring, for an annual total, according to the National Institute of Statistics, of 1,1%.

A third quarter that appears to be looking good, therefore - after +0,3% and +0,2% in the first two quarters - but above all fuelled, according to these economists, by the effect of the Olympic and Paralympic Games (OPG) on the economy, to the tune of around 0,2 points.

What was the composition of the other two 0,2 points? "The big question," observes Charlotte de Montpellier, economist at ING, "is household consumption," which represents more than half of the gross domestic product (GDP).

It could have been boosted by the sharp drop in inflation since its peaks in 2022-2023: it fell to 1,1% in September over a year, below the 2% set as a target by the European Central Bank (ECB).

A recovery in property purchases is not yet expected to be reflected in the summer figures, as the ECB only started lowering interest rates in June.

As for business investment, it is "suffering", according to INSEE, due in particular to the "political uncertainty" of the summer, which paralysed the decisions of many bosses, before the arrival of the Barnier government in September.

Once the JOP effect has dissipated, growth will mechanically slow down in the fourth quarter. It will even be zero, estimates INSEE. Charlotte de Montpellier, for her part, anticipates a 0,1% decline in GDP, before a first quarter of 2025 with an increase of 0,1% or less.

A recession characterized by two consecutive quarters of falling GDP, Ms. de Montpellier does not rule it out at the turn of the year. Medef president Patrick Martin himself issued last week "the forecast that we are already slightly in recession."

The 4th quarter starts badly

Especially since confidence surveys show a poor start to the fourth quarter.

The business climate declined in October due to "a significant drop in the climate in industry", INSEE observed on Thursday.

Private sector activity fell to its lowest level in nine months, according to the PMI Flash index published, also on Thursday, by the S&P Global agency and the Hamburg Commercial Bank (HCOB). As for household economic morale, it fell in October for the first time since April, according to INSEE.

Tariq Kamal Chaudhry, economist at the HCOB, for his part foresees "modest growth" in French GDP in the fourth quarter.

"The geopolitical issue will remain at the forefront in the coming months," predicts Charlotte de Montpellier, with a probable "resurgence of fears" in the event of Donald Trump's victory in the American presidential election.

For her, a "rebound" will not happen before the second half of 2025. The economist expects growth of 0,7% or 0,6% in total next year. The government is counting on 1,1%, as for this year, a forecast that Patrick Martin also considers "probably very optimistic".

"Our forecast is coherent and credible, in line with our budgetary scenario," assured the Minister of Economy and Finance Antoine Armand in an interview with AFP on Friday. He is counting in particular on the "dissaving" of households to boost consumption.

"The pressure is growing" for the government to "urgently" adopt measures to address the budgetary imbalances," Mr. Chaudhry observed.

While the 2025 budget provides for 60 billion in budgetary efforts, but the parliamentary discussion in the National Assembly is currently chaotic, the rating agencies have their eyes fixed on France: Fitch and Moody's have just placed it under "negative outlook", indicating a possible future downgrade of its rating, with the risk of a further increase in the cost of debt, if the situation does not improve.