Business leaders are concerned about the decline in consumption in France

2023-04-20 14:37:03

Posted Apr 20, 2023, 12:40 PMUpdated on Apr 20, 2023, 2:36 PM

So far, despite the energy crisis and the highest inflation, business leaders had, unlike households, managed to keep their spirits up. But this is eroding.

The business climate indicator, which measures the confidence of business leaders, fell for the second consecutive month in April, whether in industry or services, according to data published on Thursday by INSEE. In construction, it is stabilizing after several months of decline.

At 102 (-1 point), the global index nevertheless remains above its long-term average which is 100. Nothing catastrophic of course, but a change that reflects a certain caution as the French economy is idling : GDP would have increased by 0.2% in the first quarter according to the Banque de France and by 0.1% according to the OFCE.

Weakening of demand

If the black scenario of a disruption of energy supplies linked to the attack on Ukraine by Russia has not occurred, business leaders, whatever their field of activity, now fear a weakening of demand in the coming months. In industry as in services, the balance of opinion even returns “below its long-term average”, according to INSEE.

“The contraction in demand seems to come mainly from households”, notes Stéphane Colliac, economist at BNP Paribas, who says he is “a little surprised by the speed of the deterioration”. Affected in the portfolio by inflation, the French are reducing their spending. The retail trade index thus fell to 94 in April.

Manufacturers observe, however, that the order books from abroad are improving. However, production prospects are considered less favourable. “Production bottlenecks and recruitment difficulties […] remain significant,” notes the Institute of Statistics. In this context, the employment climate also lost 2 points, particularly in services. However, it remains at a very high level (108).

This less positive view is likely to weigh on economic growth in 2023. “Last year, companies invested heavily and rebuilt their inventories of manufactured goods for fear of shortages and supply disruptions. That’s what drove the growth. This year, this will probably be less the case,” warns Mathieu Plane, economist at the OFCE.

Destocking

While inventories had experienced their strongest rise in fifty years, companies began to destock in the first quarter. The rise in interest rates and the tightening of credit conditions should also weigh on investment.

In services, business leaders are already planning to reduce their spending, according to the INSEE survey. This is not the case, however, in industry, except in the capital goods sector. “Thanks to the public support which remains significant and to the ecological transition, the turnaround should not be violent”, assures Philippe Gudin, senior economist at Barclays.

“Moderation of inflationary pressures”

However, the survey has some good news on the price front. Manufacturers estimate that their selling prices should increase by 0.6% over the next three months – after +1.6% since January -, “i.e. the lowest anticipation since April 2021”, according to INSEE. In the food trade too, the share of retailers planning to raise their selling prices is falling (62% compared to 72% in March). “This is the first time that we have observed a real moderation in inflationary pressures in France”, notes Charlotte de Montpellier, economist at ING, in a note published on Thursday. The sign, according to her, that inflation “should gradually decline over the next few months”.