The French economy grew nearly zero in the first quarter of this year, and unexpectedly increased by 0.6% in the second quarter. However, this was partly due to the strong rebound in exports caused by the delivery of a cruise ship worth over 1 billion euros, with a negative growth of 0.1% in the third quarter. In the fourth quarter, all economic engines stagnated. The Bank of France predicted a growth of 0.1%, the French National Bureau of Statistics predicted a zero growth, and institutions did not rule out the possibility of negative growth. The consensus of all institutions is that the French economy will achieve at most a low growth rate in the first half of next year, regardless of whether it escapes the technical recession at the end of the year.
The OECD has lowered France’s economic growth forecast for this year and next to 0.9% and 0.8%. In fact, the world economy has experienced shocks again and again, and the euro zone economy as a whole is weak. Since July 2022, the European Central Bank has continuously raised interest rates. Although it has pulled the euro zone out of the inflation quagmire, it has suppressed consumption and investment, and many countries’ economies have been sluggish or even declining. The European Central Bank stopped raising interest rates in October this year, but the impact of monetary tightening on economic activities is lagging behind, and its comprehensive impact will appear next year.
The more unfavorable factor than other economies in the euro zone is that according to the relevant data of Eurostat, the inflation rate in France was 3.8% in November 2023, while the average level in the euro zone has dropped to 2.4%. In 2022, France performed the best in controlling inflation in the euro zone, mainly because the government "protected purchasing power at all costs", and spent huge public expenditures to freeze natural gas prices and electricity prices, issue energy checks to poor families, and provide inflation subsidies to income earners. Nowadays, international oil prices tend to be stable, natural gas and electricity prices are falling, and energy prices in Europe are falling year-on-year. In France, with the gradual cancellation of measures to protect purchasing power, energy prices are rising year-on-year. The good news is that the French National Bureau of Statistics predicts that food prices in France will drop sharply in the coming months.
Another unfavorable factor is the reversal of the unemployment rate decline curve. The unemployment rate in France gradually decreased from the high of 9.5% in 2017 to 7.1% in early 2023, and then rose to 7.2% in the second quarter and 7.4% in the third quarter. The French National Bureau of Statistics predicts that the employment slowdown will continue in the next few quarters. Analysts pointed out that this is of course caused by the weak economic prospects, but also because the previous rescue measures of "guaranteeing enterprises and ensuring employment" have been stopped, and the "short-term negative effect" of pension reform has been added: since September 2023, the retirement age in France has been delayed, and the working population base has increased accordingly.
The budget deficit is too high and the public debt is too heavy, which has endangered France’s sovereign credit rating. Rising interest rates, weak growth and weak employment are likely to put pressure on tax revenue and lead to further deterioration of public finances. The French government has repeatedly promised to reduce the budget deficit to less than 3% of GDP by 2027. Therefore, public expenditure must be cut, which means that in the short term, it is difficult for the government to make a difference in purchasing power, wages, housing, immigration and other issues that people are most concerned about.
The French National Bureau of Statistics predicts that consumption and investment will continue to be affected by the monetary tightening policy in the first half of next year, especially in the construction industry. However, thanks to the further easing of inflation and the global economic recovery, the French economy may grow slightly, reaching about 0.5% by the middle of next year. Inflation in France will also drop to 2.6% by the end of June next year, and the core inflation rate will drop to 2%. However, the agency stressed that "all forecasts are full of uncertainty", especially the geopolitical factors and the uncertainty of the central bank’s monetary policy decision.
However, the French government maintains the growth target of 1% this year and 1.4% next year, and reiterates that it will continue to promote reforms under the framework of the "2030 Investment Plan", focusing on improving productivity and competitiveness. On December 10th, President Macron made a special trip to the Airbus headquarters in Toulouse to make a phased summary of the achievements of "France 2030" since its implementation for more than two years in the birthplace of the French industrial success story. He announced that "France 2030" aims to achieve three goals-obtaining industrial and technological autonomy, achieving full employment and fulfilling climate commitments. In 2024, the government will introduce more measures to ensure that French re-industrialization and innovation investment "accelerate, accelerate and accelerate".