The rise in prices slows down significantly in October, Bruno Le Maire predicts the end of “the inflationary crisis”

2023-10-31 10:03:21

A maintenance welcomed by the executive. Growth in France’s gross domestic product (GDP) slowed to 0.1% in the third quarter, barely remaining in positive territory thanks to the rebound in household consumption, according to a first estimate from INSEE published this Tuesday .

This modest increase in GDP between July and September, in line with the forecast of the National Institute of Statistics, marks a clear slowdown compared to the growth of 0.6% recorded in the second quarter (INSEE revised it in increase of 0.1 point). In reaction, the Minister of the Economy Bruno Le Maire welcomed this Tuesday morning a French economy which is “holding up” in the third quarter.

“We are emerging from the inflationary crisis”, also estimated the minister upon the publication of inflation figures showing a clear slowdown in October over one year compared to September, to 4% after 4.9%. This drop in inflation is due, according to the Institute of Statistics, to the slowdown over one year in the prices of energy, food and, to a lesser extent, manufactured products. The prices of services would accelerate slightly. Over one month, consumer prices should increase by 0.1% in October 2023, after -0.5% in September.

“There cannot be solid growth if we do not get rid of inflation definitively: we are emerging from the inflationary crisis, it is a success for the government’s economic policy which has saved French households , alone among all European countries, double-digit inflation rates for several months,” Bruno Le Maire told journalists.

Household consumption on the rise

“Final domestic demand is accelerating and contributing positively to GDP growth this quarter (+ 0.7 points after + 0.2 points in the second quarter of 2023), due to the joint increase in household consumption,” notes the Insee in his publication. Conversely, foreign trade contracts in the third quarter of 2023: exports fall significantly after a dynamic second quarter. In this context, foreign trade contributes negatively to GDP growth this quarter (-0.3 points after -0.1 points).”

In fact, the main subject of satisfaction remains the slight recovery in household consumption, a slight rebound of 0.2% in September. In detail, they were driven by an increase in purchases of food products (+ 1.2%), according to INSEE. Households made more purchases of food products, particularly in the drinks, bakery and pasta sections. However, food consumption was 3.9% lower in September compared to September 2022. However, economists polled by Reuters were more optimistic and on average expected a 0.4% increase in household spending in September.

Business investment has also continued to show dynamism for the moment (+1.5%). On the other hand, after a dynamic second quarter, exports contracted by 1.4% over the period, so that the contribution of foreign trade to growth is negative. Manufacturing production also fell, by 0.3%, and that of market services slowed to 0.3%.

For the whole of 2023, INSEE anticipates growth of 0.9%, identical to the forecast of the Banque de France and a little below that of the government (+ 1%).

With this deteriorating economic context, unemployment on the rise again, a public debt of more than 3,000 billion euros and a public deficit still beyond the control of Brussels, the situation is complicated for the government. And Bruno Le Maire will have to tighten the screws on public finances otherwise he will be viewed unfavorably by the rating agencies but also to avoid sanctions from the European Commission.

The Uncertainty of the Middle East Conflict

“The situation in the Middle East offers prospects that are difficult to anticipate. An extension of the conflict in this region could significantly reshuffle the cards. Bruno Le Maire admitted that it would then be necessary to “revisit the entire copy” of the forecasts while Bercy is crossing its fingers for a restart of growth to 1.4% in 2024. Another handicap, the high interest rates decided by the European Central Bank (ECB) to calm down inflation is starting to seriously weigh on activity or household investments such as in the real estate sector.