French economic activity is progressing, but moderately in the first quarter. Driven by foreign trade which made it possible to compensate for the lower dynamism of household consumption and investments, in an environment still constrained by high rates, this increase in gross domestic product (GDP), in line with the first estimate of the Insee is slowing compared to growth of 0.3% in the fourth quarter of 2023, increased by 0.2 points.
In this wake, growth for the year 2023 is also revised from 0.9% to 1.1%, according to detailed results published Friday by the National Institute of Statistics, a few hours before the verdict of the agency. S&P Global Ratings rating on the French economy. INSEE has changed the reference year (2020 instead of 2014) for the calculation of national accounts, allowing it to integrate new sources and methods which may lead to a revision of the data series up to 1949. .
These changes are in addition to the ordinary revision of the national accounts covering the last three years (2021 to 2023), according to INSEE.
In detail, in the first quarter, the evolution of household consumption is revised downward to +0.1% while a first estimate showed, at the end of April, an increase of 0.4%. A good omen, however, is that the purchasing power of households per consumption unit, which takes into account the composition of households, continued to increase in the first quarter, gaining 0.5% against a backdrop of slowing inflation.
According to figures also published on Friday, the rise in consumer prices remained stable over one year in May, at +2.2%. Thus, the household savings rate increased to 17.6%, after 17.2% in the fourth quarter of 2023, a level higher than that prevailing before Covid, constituting a reserve for possible future purchases. Penalized by high rates decided by the European Central Bank (ECB) to cool the rise in prices, investments (-0.4%) fell into the red, whereas they were initially estimated to increase by 0.3 %.
The decline in investment is noted for both businesses (-0.5%) and households (-1.4%), with housing construction being particularly affected. Despite the very likely rate cut by the ECB on June 6, monetary policy should remain restrictive in 2024. Enough to weigh on business confidence and encourage them to exercise caution, in a “gloomy” climate in terms of insolvencies .
On the other hand, the contribution of foreign trade was stronger in the first quarter, at +0.2% compared to stagnation announced in the first estimate. While the growth carryover is estimated at 0.6% at the end of March by INSEE, each tenth of a percentage point will count on the coming quarters to reach the government forecast of growth of 1% in 2024.
The Banque de France expects 0.8%. The context is delicate for the executive as S&P’s opinion on the French economy will be closely scrutinized on Friday evening. A downward revision of its rating, currently excellent at “AA”, but with a negative outlook, may occur if the agency considers that the efforts made by the State to consolidate its finances are not sufficient.
The public deficit skidded in 2023, to 5.5% of GDP compared to 4.7% in 2022, due to lower revenues than expected. The government hopes to reduce it to 5.1% in 2024 and has maintained its ambition to fall below the threshold of 3% of GDP in 2027, in line with European standards, focusing on growth, structural reforms and control of spending. He has already made 10 billion euros in savings in state spending and is seeking 10 billion additional cuts for this year. According to INSEE, public debt reached 109.9% of GDP in 2023, down compared to the previous year (111.2%).
Sami Nemli with Agency / Les Inspirations ECO
