According to predictions issued on Monday by the INSEE, GDP in France could grow by 0.25 percent between April and June, after a stagnant first-quarter performance. July is expected to see inflation rise to 5.4 percent. Households' buying power will be reduced as a result of this.
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| Paris, France |
According to INSEE, France will face a combination of sluggish growth and rising inflation at the start of its five-year tenure in office. After having stalled between January and March, the Statistical Institute predicts that the national economy will expand by a meager 0.25 percent in the second quarter, according to revised predictions issued on Monday. As a result, France would not be considered to be in negative territory. Furthermore, because to the dynamism of activity at the end of last year, the growth overhang for 2022 should be 2.6 percent by the midpoint of the year.
At the same time, inflation is expected to continue rising. Consumption prices are expected to continue rising at their current pace in May and June, according to INSEE, after reaching an annual rate of 4.8 percent in April. The rise in consumer prices is being driven by supply constraints resulting from the conflict in Ukraine and China's zero-covid strategy. The institute calculates that if the tariff shield and the 18 cent discount at the pump, both of which were implemented by the administration, the index would have been around 2 points higher.
Of course, there are many unknowns. It is difficult to forecast the growth of energy prices or the amount and speed with which the increase in production costs will be felt in the current geopolitical setting.
Nonetheless, the statistics organisation forecasts an increase in food product costs. Between the implementation of producer-distributor agreements and the impact of the war between Kiev and Moscow, the rise on the shelves in June might approach 6% year on year. However, inflation should be transferred to the pricing of manufactured items as well as services, which are particularly vulnerable to SMIC revaluation. As a result, core inflation should rise from 2.5 percent in March to 3.5 percent in June.
This price increase is beginning to have a significant impact on household purchasing power. The loss would be 1.5 points in the first quarter (up to 1 point due to the loss of the inflation allowance, which has been completely integrated into the revenues for 2021), and 0.5 points in the second quarter.
After declining dramatically in the first quarter, household spending, the major engine of GDP, should return modestly between April and June, owing to catch-up effects in key sectors, such as hotels and restaurants, and the employment market's strong resilience. Insee also does not rule out the possibility that households would cut their savings rate slightly in order to preserve their level of life.
Everyone is not in the same boat. According to a recent analysis by the Council for Economic Analysis, the poorest 20% of French individuals would have spent practically all of the excess money collected during the epidemic. "The hardest part is ahead of us," said Economy Minister Bruno Le Maire last week, who is working on a purchasing power bill to help the French navigate this difficult path. The projection of 4% growth on which the administration based its budget for 2022 appears to be out of date.