why France should do (a little) better than the others

No big surprise in the figures published this Friday, October 28, by INSEE. As expected, growth slowed slightly in the third quarter, to 0.2%, after jumping 0.5% in the spring. In accordance with the latest forecasts, French economic activity benefited from a slight upturn in the production of services (+0.5%), while consumption began to stall (0%), due to in particular the fall in food consumption (1.6%) and the very marked decline in spending in the hotel and catering industry, after an exceptional summer.

Inflation higher than expected

For forecasters, however, this relative resilience should not hold up over the coming months. With inflation rising sharply again in October (to 6.2% against 5.6% in September), purchasing power is indeed in danger of flagging at the end of the year. It is expected to fall by 1.8% in the fourth quarter, after an increase of 1.7% linked to the revaluation of the minimum wage and social minima. This decline will weigh a little more on household consumption, the great engine of the French economy.

“It’s a bit of bad news for the month of October: inflation is a little higher than expected. And, above all, it does not only affect energy anymore, which means that it will be more and more difficult to fight it”, says Sylvain Bersinger, economist at Asterès. Economic activity is therefore likely to suffer further in the coming months from a very deteriorated international context, with the energy crisis weighing on production, supply problems that are not going away, and overall all the uncertainties surrounding the future of the Ukrainian conflict.

France better armed in the face of difficulties

But in its misfortune, France could resist a little better than its big European neighbors. According to the latest IMF forecasts, published in mid-October, Germany (− 0.3%) and Italy (− 0.2%) should enter recession next year, while France (0.7 %) and Spain (1.2%) could stay afloat. The German and Italian economies are in fact much more exposed to the energy crisis, in particular because of the considerable weight of industry in their GDP. For once, France will therefore be able to congratulate itself on having an economy that is more oriented towards services.

Another (small) cause for celebration, the good performance of the investment. Despite the context, it rose by 1.3% in the third quarter, driven by the manufacturing sector. Among the possible explanations, companies are looking to invest in less energy-intensive production tools to deal with the crisis, or in more automated tools to deal with labor shortages. “In any case, this means that companies remain confident in the recovery of economic activity, which in itself is positive”believes Sylvain Bersinger.

Surprising dynamism of the labor market

Very high at the end of the health crisis, the morale of business leaders has stabilized since August, after the fall following the war in Ukraine. In October, it even rose very slightly, by 0.1% point over one month. As for the labor market, it also retains an astonishing dynamism. According to Urssaf, the declarations of hirings of more than one month amounted to 2.6 million in the third quarter, i.e. at a historically high level, 18% higher than they were in the fourth quarter of 2019, just before the health crisis.

In this context, more and more observers take a dim view of the acceleration of the ECB rate hike. It has just announced on Thursday 27 October a new increase of 0.75 points in its main key rates. By tightening corporate credit conditions to fight inflation, the risk is indeed to accelerate the entry into recession of the economies of the euro zone. “If there were to be a recession in France, it would be limited and temporary”, assured François Villeroy de Galhau in an interview with The cross early September. For the moment, the Governor of the Banque de France is still on this line.

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