With zero growth in the first quarter and inflation at nearly 5%, France is entering stagflation.
INSEE published two figures this Friday morning which cast a harsh light on the five-year period to come. On the one hand, prices increased by 4.8% over one year in April, a record since 1985; on the other, economic activity stagnated in the first quarter. It has not changed one iota, when economists counted, a few weeks ago, on a slight improvement… France therefore seems to have already entered stagflation, a deleterious situation characterized by a sharp rise in prices and low growth which, in the long term, can lead to the impoverishment of a country.
Read alsoProductivity in France: working more to generate more growth
“The gross domestic product (GDP) is marking time (…). It bears the imprint of the two exogenous shocks (the Covid with Omicron in January, then the war in Ukraine, which reinforced inflation) which combined », summed up Julien Pouget, head of the business cycle department at INSEE. Contrary to the 1970s, it is households and no longer businesses that pay, for the moment, most of the bill. To avoid establishing self-sustaining inflation mechanisms, salaries have not been indexed to price trends for several decades.
After energy, inflation is now also affecting services and food. It undermines the purchasing power of the French and, with it, consumption. In the first quarter, the latter fell sharply by 1.3%. The trend surprised the experts; it was however heralded by the drastic fall in the household confidence indicator over the past two months. Despite the increases in raw materials, business investment is holding up, however.
Between the Chinese confinements, which are once again seizing up the global production and supply chains, and the stalemate of the war in Ukraine, the coming months unfortunately do not look much better. “Looking ahead, inflation is likely to continue to rise, due to the war in Ukraine, supply chain tensions and continued upward pressure on energy, commodity prices. raw materials and foodstuffs, says Charlotte de Montpellier, economist at ING bank.
Lapsed forecast
The 4% growth forecast on which the 2022 budget was based therefore already seems obsolete. On the other hand, Paris is not threatened, for the time being, with a recession, because annual growth will benefit from the economic dynamism of the end of 2021. Even if GDP remained sluggish all year, growth would reach 2.4 % thanks to this spring effect.
For BNP Paribas economist Stéphane Colliac, “Second quarter growth should remain very moderate, affected by the decline in household purchasing power, with an increasing spread of inflation to all consumption items (notably food and manufactured goods)” . To support activity and limit the social tensions that inflation could feed, the executive should multiply gestures in favor of purchasing power. According to the bank, in the year 2022, “these are nearly 9 billion euros of additional measures which could thus come to support the disposable income of households”.
Read alsoConsumption, an essential factor for French growth in 2019
This breakdown in growth, against a backdrop of deep geopolitical and macroeconomic uncertainties, complicates Emmanuel Macron’s projects. The president was relying largely on GDP growth to finance his very costly measures: tax cuts, school reform with higher teachers’ salaries, energy transition… Presidential elections by definition carry a part of promise that is impossible to keep. , but the next five years could push this principle even further. With the risk that this inflationary context limits the capacity of the executive to carry out reforms, admittedly unpopular, but necessary, such as the postponement of the retirement age (read the interview with Philippe Aghion opposite). Inflation, which increases government revenue, could initially make the government’s budget equation more fluid. Before weakening the public finances, due to the tightening of the monetary policy which is announced in the coming months with in particular increases in interest rates.
Sales fall in stores
Gloomy atmosphere in the shops. “Since the start of the war in Ukraine, sales have been falling,” laments Emmanuel Le Roch, the general delegate of Procos, a federation which brings together 310 major brands. The rise in prices, which the conflict has accentuated, reduces the purchasing power of consumers. Faced with soaring spending constraints such as energy or rent, they defer or waive certain expenses they can do without, such as buying clothes and toys. Added to this is the presidential election, which has created uncertainty, which is never good for business. “In March, footfall in shops is down 25% to 30% compared to 2019laments Emmanuel Le Roch. Sales fell by 5.3%. All types of businesses are concerned, even those which have been spared until now. » The home sector, booming since 2020, continues to grow but much more slowly (+3.4% compared to March 2019). On the other hand, sales of shoes (-13.8%), toys (-10.3%) and clothing (-9.7%) collapsed. This wait-and-see attitude affects all sales channels. It is even online sales that have fallen the hardest (-26% over one year), after the peaks in orders observed in 2020 and 2021, when the stores were closed.