The recovery “is long overdue” for French growth, according to INSEE

Overall, the Institute estimates in its latest economic report that growth will be "limited in the first half", and even "stalled" (+0,0%) in the first quarter - less than what it had initially forecast (+0,2%).

“The first data available for January 2024 (notably industrial production and household consumption) are poorly oriented and growth would be zero in the first quarter, penalized by occasional stoppages in industry, particularly in refining and automobiles,” explains INSEE.

To this "one-off" surprise were added "new data concerning housing starts which were a little more degraded than expected", explained Thursday during a press conference Dorian Roucher, head of the department of conjuncture.

“Disinflation confirmed”

Overall, "the recovery is slow to come", says INSEE, and "the improvement in consumption would only be reflected in growth in the spring". Growth would in fact "rebound" in the second quarter, to +0,3% (compared to +0,2% initially), "under the effect of significant aeronautical and naval deliveries" and thanks to a release of the "brakes" of the beginning of the year.

The government is counting on 1% growth in 2024 to meet its budget and its deficit reduction plan, an ambitious objective given the weak forecasts for the start of the year.

“Accounting, we would need to have 0,7% growth in the third and fourth quarter to obtain 1% growth over the year,” explained Dorian Roucher.

Good news, however, on the price side: “in France, the inflationary episode is fading,” says INSEE. “The consumer price index fell to +2,9% over one year in February 2024 (according to the provisional estimate) and this decline should continue at +2,6% in June”, therefore approaching the target of 2% inflation advocated by the European Central Bank (ECB).

Core inflation, which excludes volatile food and energy prices, is also expected to decline by June, to +2,1% year-on-year.

"The composition of inflation has, however, changed a lot", says INSEE: "food and manufactured product prices tend to stabilize and inflation is now mainly driven by service prices", where "companies pass on to their customers the past increase in their salary costs.

Restart “through consumption”

Energy prices are also increasing "sharply", "under the effect of the partial reinstatement of taxes on electricity", even if this is partly "counterbalanced by the fall in gas prices". INSEE thus forecasts that energy inflation will increase from +4,4% over one year in February to +7,8% in June.

Despite this, “disinflation is confirmed”, according to INSEE.

Thanks to this slowdown in inflation, the revaluation of social benefits and an increase in wages greater than the rise in prices, INSEE expects an increase in purchasing power of around 0,8% mi -2024.

These gains in purchasing power "would encourage a relative rebound in household consumption" (+0,3% per quarter), particularly with regard to accommodation and catering expenses and food purchases, which "would timidly begin to to get back on track” after “two years of unprecedented decline”.

The "general message" is that "there is a recovery through consumption rather than through investment, which remains depressed" (-1,0% in the first quarter, -0,5% in the second ), summarized the head of the economic department.

The unemployment rate should record a "slight increase" of 0,1 point in the first quarter of 2024, to 7,6% of the active population - its highest level since the third quarter of 2021 -, then would remain at this level in the second quarter.

The reason: the active population should continue to increase by around 40.000 additional workers per quarter, "notably under the effect of pension reform", when employment would grow "half as fast", explains the institute.

Illustrative image of the article via Depositphotos.com.