French growth recovers in the second quarter
DECRYPTION – The return of foreign tourists has noticeably boosted activity. On the other hand, household consumption continued to fall, while inflation exceeded 6% in July.
In the tense climate that has shaped economic exchanges since Russia’s invasion of Ukraine, the executive branch can flatter itself that it will deliver solid results this week. After unemployment, which fell by 0.8% in the second quarter, growth surprises with its resistance.
According to initial forecasts by INSEE, between April and June economic activity grew by 0.5% compared to the previous quarter, twice as fast as expected. After the slump in the first quarter (-0.2%), this recovery dispels recession fears. ” The second quarter growth figure is a victory for the French economy in difficult times ‘ Bruno Le Maire was delighted at the exit of the Council of Ministers this Friday.
signs of shortness of breath
The growth overhang, i.e. the increase in gross domestic product (GDP), if production stabilizes at the level at the end of June, now reaches “ for France for 20222.5% at the end of the second quarter instead of 1.9% at the end of the first quarter », details of the insee. This revision thus confirms the government’s forecast, which may have seemed somewhat optimistic up to now. In fact, Bercy projects growth of 2.5% this year before slowing to 1.4% in 2023. The shock of the health crisis has now been overcome. Economic activity is 1% above the level reached at the end of 2019. INSEE forecasts growth of 0.25% in the second quarter, Banque de France 0.2%. The gap between reality and these expectations is mainly explained by the clearly positive contribution of foreign trade.
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According to this first estimate, imports fell by 0.6% in the second quarter, while exports increased by 0.8%. “The fall in imports means that the increase in aggregate demand (both external and domestic) during the quarter was met by an increase in production rather than an increase in imports, and in this sense it contributes to GDP growth», explains INSEE.
For Julien Pouget, Head of Business Cycles at Insee, “foreign tourists have helped make the difference“. International travelers have indeed returned unequivocally to France after two years of restrictions. Their spending increased again this quarter by 8.6% after 5% at the beginning of the year. The hexagonal growth should still benefit from this tourist spring this summer, but once pre-pandemic habits are restored, it will lose momentum.
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The activity must then be based on domestic demand and in particular on its traditional pillar, consumption. A somewhat worrying prospect as households have been seeing clear signs of running out of breath of late. While inflation remains at historical levels, consumption fell by 0.2% this quarter, weighed down by the fall in goods purchases (-1.3%). On the other hand, the consumption of services and in particular of accommodation and meals (+8.9%) is increasing again (+1.5% in total).
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price increases
Given the tens of billions of euros that the state spends over six months to maintain purchasing power, this drop seems worrying. For Gilles Moëc, Chief Economist of the Axa Group, “The fact that consumption continues to decline despite generous subsidies is revealing. Fiscal stimulus is struggling to offset real incomes and/or loss of consumer confidence in a difficult environment“On the domestic demand side, the only good news comes from business investment, which is holding up well despite the complex economic climate.
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“Confidence in the economy has fallen significantly in recent monthsnotes Chantana Sam, economist at HSBC,but the deterioration appears to be much more pronounced among consumers than among business leaders. The INSEE household climate indicator fell this week to its lowest level since 2013, while the business climate is holding up surprisingly well and is slightly above its long-term average. While entrepreneurs keep an eye on the good development of the labor market, individuals worry about inflation.
In July, price increases in France reached a record annual rate of 6.1%, after 5.8% in June, the highest since 1985. Inflation was fueled by increases in the price of services (+3.9%) and food ( + 6.7%) over one year. On the other hand, energy prices slowed. INSEE estimates that inflation will peak at almost 7% in autumn. The freeze on public energy prices lowers French inflation by about 2 points, explaining the gap to the European average of more than 8%. But they can’t last forever. The government expects inflation to average 5% this year, which would fall to 3.2% next year. Optimistic forecasts that depend heavily on geopolitical developments.
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