Slight improvement in sight for the French economy?
After a sluggish end to 2023, economic activity should experience a smooth restart in the first quarter, supported by the manufacturing industry and services against a backdrop of disinflation, the Bank of France indicated on Thursday.
The monetary institution anticipates growth of 0.1% to 0.2% in the first quarter compared to the previous quarter, marked by stagnation.
This is more or less the level of growth expected by INSEE, which for its part expects an increase of 0.2% in each of the first two quarters of 2024.
“There is a slowdown in the economy, but we are going to escape "to the dark scenario that some feared"
, declared the governor of the Bank of France, François Villeroy de Galhau, to the newspaper Ouest-France, ruling out a recession,
"barring a shock"
.
“The fall in inflation will generate more purchasing power for households and therefore more consumption. From now on, prices are increasing less quickly than wages, on average
,” he added, reiterating his
“confidence”
in a return of price increases to 2% by 2025
“at the latest”
.
For the whole of 2024, the Banque de France, however, showed a little more caution, now forecasting, according to the governor, growth
“close to 0.9%”
, compared to 0.9% previously.
This is much less than that of the government (1.4%), which plans to revise it downwards soon.
Also read: The French economy has been at a standstill for six months
Lower rates
Between January and March, activity would be driven by the manufacturing industry and market services, such as information-communication, accommodation-catering or transport services, according to the monthly economic survey of the monetary institution French.
Remaining relatively stable in January, activity would progress in the industry in February, she said based on the expectations of 8,500 business leaders or establishments surveyed between January 29 and February 5.
Although at a slower pace, services should continue in February the progression observed the previous month, despite the blockages of farmers which affected transport and automobile repairs.
In the building sector, while the finishing work is holding up thanks to energy renovation, the structural work, particularly the construction of new houses, would continue to struggle.
It suffers from high interest rates decided by the European Central Bank (ECB) to counter inflation, but which weigh on household investments.
François Villeroy de Galhau indicated that rates should decrease this year, but only
“when the inflation outlook is sufficiently anchored around 2%”
.
Also read: Foreign trade remains the black spot of the French economy
Pessimistic companies
A bad omen for activity in the coming months, companies are pessimistic regarding order books in industry and construction.
The uncertainty indicator started to rise slightly again in January.
Companies cited a lack of visibility increased by difficulties affecting supplies passing through the Red Sea.
On the inflation front, however, the Banque de France reported a continuation of
“the moderation of sales prices”
, despite the
“traditional price revisions at the start of the year”
.
In industry (15%), services (21%) and construction (14%), the proportion of companies having increased their selling prices in January returned to the levels observed that month before the pandemic.
More and more companies are also lowering their prices in industry (10%) and construction (9%).
A proportion which, however, remains low in services (5%).
Thus, in the agri-food industry, where commercial negotiations between suppliers and distributors were brought forward to January, 13% of companies increased their prices last month (compared to 36% in January 2023) and 15% lowered them (compared to 2% ).
Supply difficulties remained stable in January in industry, cited by 14% of companies, the improvement observed in aeronautics being offset by the difficulties encountered by certain sectors such as metallurgy due to the situation in the Red Sea .
These supply problems are
“disappearing”
in the building sector (4%), according to the monetary institution.
Despite the weak dynamism of the economy, recruitment difficulties remained stable at 41% in January compared to December, especially in services and even construction.