2023-07-31 07:17:41
Published on Jul 31, 2023 at 7:17 am
The figure took all economists by surprise. Economic activity increased by 0.5% in France in the second quarter of 2023 compared to the previous three months, according to the first estimate from INSEE published on Friday. That’s five times faster than expected.
Both INSEE and the Banque de France forecast a 0.1% increase in GDP over the period. Even if, in the process, the Institute of Statistics revised its figure for the first quarter downwards – to +0.1% against +0.2% – it is a divine surprise for the government. Not only is France doing better than Germany, which saw its activity stagnate between April and June, but this good figure also confirms its growth forecast of 1% in 2023, which so far seemed optimistic. “It is an objective that I confirm” asserted the Minister of the Economy, Bruno Le Maire, on RTL on Friday.
“More moderate underlying trend”
This performance puts Bercy in a position to respect its budgetary trajectory this year, ie a deficit of 4.9% of GDP. And eases the pressure a little on the preparation of the finance bill for 2024, which is particularly complicated at this stage. Above all, it avoids having to raise the amount of savings to be made, which would have been the case if growth had been sluggish in the second quarter. For now, the stated objective is to make “at least 10 billion euros” in savings next year. The figure will be adjusted at the start of the school year, as will the growth target for 2024, set so far ambitiously at 1.6%.
If a certain caution seems appropriate, it is because on closer inspection, the picture is not as flattering as one might think at first sight. “This figure of 0.5% is good but can be nuanced”, according to Nicolas Carnot, director of economic studies and syntheses at INSEE. “If it is above expectations, the underlying trend of the French economy is more moderate”, he says while recalling that “this is a first estimate”. In September, however, INSEE should update upwards its growth forecast for the year, which was 0.6%.
Lack of spring
The pleasant surprise comes from the rebound in exports, which is due, among other things, to the delivery of a cruise ship. “If we remove exports of transport equipment, GDP increases by 0.1%”, calculated Stéphane Colliac, economist at BNP Paribas. Over the period, production was also dynamic, also partly supported by one-off factors, such as the restart of the nuclear fleet.
If Bruno Le Maire was thus able to rejoice to see the French economy “engaged in a virtuous circle where it is production that finances our social model and redistribution”, economists are less enthusiastic.
For them, the observation remains the same: growth lacks resilience. Very weakened, “demand is becoming the main problem”, notes Eric Heyer at the OFCE. Household consumption still in the wrong direction, another drop of 0.4% between April and June. Food expenditure continues to fall sharply (-2.7%). While inflation is settling down – it fell to 4.3% over one year in July according to INSEE – and wages are accelerating, some experts do not rule out a recovery in the second part of the year, but moderate.
On the business side, order books are eroding. And the rise in interest rates is producing its effects. However, businesses continued to invest (+0.7% in Q2). But “surveys show that we can expect a sharp contraction in credit demand in the coming months,” notes Charles-Henri Colombier, director of economic conditions at Rexecode. At Allianz Trade, Maxime Darmet is already pointing to the “brutal slowdown in loans at less than one year”. “It’s a bad omen for a lot of SMEs to dry up their cash lines,” he worries. However, the most affected sector remains the construction sector. Household real estate investment fell for the fourth consecutive quarter in the spring.
Budget announcements
In the coming months, France will not be able to count on foreign demand to compensate for the sluggishness of the tricolor market. “Growth has been saved by foreign trade for three quarters. There is every chance that it will not last,” warns Bruno Cavalier, chief economist at Oddo-BHF.
Indeed, the international environment is also darkening. The German economy is weighed down by its industry, which will have an impact on France. China disappoints. “The second half could be worse than expected due to the backlash effect on exports,” warns Stéphane Colliac.
In this degraded context, economists are following the government’s budget announcements like milk on fire. “Between the delayed effects of monetary tightening and the budgetary impulse which will be under constraint, it is not impossible that the GDP will stagnate or fall over the second part of the year”, warns Charles-Henri Colombier.
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