Olympic Games and consumption in support of 2024 growth, uncertainty over public accounts

Positive fallout from the Olympic Games, acceleration in consumption against a backdrop of falling inflation, contribution from foreign trade... GDP should benefit from several supports this year, despite the sluggishness of investment.

“This forecast is of course surrounded by a major hazard, which is that of the political situation in France,” warned Dorian Roucher, head of the economic situation department of the statistical institute, during a press point.

Thus, the economic report published on Tuesday takes into account the budget cuts of several billion euros made by the outgoing government to restore public finances. But it does not include the measures that a new government could take, potentially likely to modify the country's economic policy.

Suspended note

After its success in the second round of voting on Sunday, the New Popular Front (left) still hopes to govern alone despite its lack of an absolute majority, a hypothesis rejected by the presidential camp which advocates a broader coalition.

“Our economic policy is producing positive results. It confirms that the supply-side policy is the best possible for France,” declared the minister, the outgoing Minister of the Economy and Finance, Bruno Le Maire. The government was counting on an increase in GDP of 1%.

“Returning to this supply policy to switch again to a demand policy – ​​1981 to the power of 10 – would be an irremediable economic mistake,” he said.

“We must therefore make our best efforts to build a majority of projects,” he added to journalists. Among the possible compromises, the minister cited the representation of employees within companies or an acceleration of the reduction in the gap between net and gross salaries.

This climate is not likely to reassure public finances, already weakened by the crises and whose risks of slippage have been amplified with these anticipated legislative elections.

While the public debt reached around 111% of GDP (almost 3.160 billion euros at the end of March) and the deficit rose to 5,5% of GDP in 2023, Bruno Le Maire described it as "furious madness" the desire of the left to “redistribute money that we don’t have”.

“There is a serious risk on the French rating” if the recovery of public finances does not continue, he added, as the agencies Moody's and S&P Global have highlighted for their part.

The gap between France's loan interest rate and that of Germany, a benchmark in Europe, remains higher than before the dissolution on June 9. It should remain so "in the face of the lack of clarity and political visibility in the coming weeks", estimated François Rimeu, senior strategist at Crédit Mutuel AM.

More purchasing power

In 2024, in addition to foreign trade (+0,9%), activity should benefit from an acceleration in household consumption (+1,3%) thanks to the decline in inflation, the increase in real wages and the revaluation of social benefits.

“After two lean years, (...) households are regaining a little purchasing power” while continuing to save more than before Covid (17,1% of their income on average), explained Dorian Roucher.

Inflation should reach 1,9% year-on-year in December, compared to 3,1% in January. As an annual average, it would stand at 2,2%, a clear decline compared to 2023 (4,9%), now mainly driven by services rather than food.

Investment would be sluggish (-1,0%), still penalized by difficult financing conditions, despite the slight easing of rates initiated by the European Central Bank in June.

After an increase of 0,2% in the first quarter, GDP should increase by 0,3% between April and June.

In the third quarter, the Olympic Games would have an impact of 0,3 points on growth, which would reach 0,5%, thanks to sales of tickets and broadcasting rights as well as increased tourist activity.

This "one-off effect" would however disappear in the last quarter, where GDP would fall by 0,1% "as a backlash", according to INSEE.

Illustrative image of the article via Depositphotos.com.