Posted Oct 12, 2022 5:06 PMUpdated Oct 12, 2022, 6:49 PM
The government has probably not finished with the question of purchasing power and support for demand already at the heart of the concerns of the French this year. Despite the emergency measures deployed by the executive and the successive increases in the minimum wage, purchasing power could decline in 2022 and 2023, according to the French Observatory of Economic Conditions (OFCE), which presented its new forecasts on Wednesday. .
In two years, purchasing power measured per consumption unit (CU) should fall by 1.4%, wiping out most of the gains (1.9%) recorded in 2021. It should thus return to a level close to that of 2019, after an almost blank 2020.
More pessimistic than Bercy
In detail, the OFCE estimates that the purchasing power of households would decrease by 0.1% this year. Measured per consumption unit (CU), it would decline by 0.6%. The increase in income in the second half following the revaluations undertaken since the summer (social benefits, index point for civil servants, minimum wage, etc.) should only partially offset the losses recorded in the first six months of 2022 . “The strongest decline for forty years”, underlines the economic institute.
But the situation would deteriorate in 2023. Unlike Bercy, which expects a 0.9% increase in purchasing power next year, the OFCE anticipates a contraction of 0.3%. Reduced by UC, the decline would even reach 0.8%. This more pessimistic projection than that of the executive is explained by a very different assessment of the evolution of the labor market. “We anticipate a reversal with a rise in the unemployment rate to 8% next year and the destruction of 175,000 jobs. This will weigh on the wage dynamic,” explains Mathieu Plane, economist at the OFCE. The government, for its part, is counting on more than 100,000 job creations next year, “which will support the incomes of the French people”, it is insisted.
Slowdown in consumption
In parallel, inflation should continue to amputate the budget of the French. Assuming a barrel of Brent at $100 and a 15% increase in regulated gas and electricity prices, the economics institute estimates that it could reach 4.2% on average. next year.
For the OFCE, it is therefore to be expected that the French will spend less. According to its projections, consumption, which accounts for more than half of French GDP, would increase, in volume, three times less quickly than in 2022 (+0.9%). However, households are likely to start drawing on their savings again, after having once again filled their woolen stockings this fall. At the end of 2023, the savings rate should thus converge to its level before the health crisis at 15.6% of gross income.
0.6% increase in GDP in 2023
The relative sluggishness of consumption should limit the growth of economic activity to 0.6% next year according to the OFCE. A forecast halfway between those of the most pessimistic who expect a decline in GDP like Barclays, and those of the most optimistic, including Bercy, who expects growth of 1%. Without the various shocks (omicron, energy prices, interest rate hikes, etc.) the increase in GDP would be 2%, the institute specifies.
The observatory’s forecast does not include the possible effects of an interruption in Russian gas deliveries. Among the other hazards identified by the institute is the risk of a real estate crisis or an epidemic rebound. On the other hand, “greater use of savings could modify our growth scenario upwards”, recognizes Mathieu Plane.
In this context, keeping the public deficit at 5% of GDP next year will in any case be a real challenge. The OFCE is rather aiming for 5.2% due, among other things, to the less dynamic tax revenues, the drop in compulsory levies and the increase in the debt interest burden.