France’s gross domestic product (GDP) is expected to grow slightly less than previously anticipated in the third quarter, due to political uncertainty and the high cost of credit weighing on business investment, INSEE said on Monday, while maintaining its forecast for 2024 as a whole.
Despite the boost from the Olympic and Paralympic Games on quarterly growth (0.3 points), the National Institute of Statistics has revised its GDP growth forecast for the period from July to September slightly downwards, from 0.5% to 0.4%, while maintaining it at 1.1% for the year 2024, identical to last year.
In the fourth quarter, activity would decline by 0.1%.
“In our surveys, businesses are more pessimistic than two months ago,” before the early legislative elections, stressed Dorian Roucher, head of the economic situation department.
“In particular, investment expectations, which were already deteriorating, have become even more gloomy,” he added at a press conference.
While Michel Barnier was appointed Prime Minister almost two months after the election, this slowdown in investment can also be explained by interest rates remaining high despite the reduction initiated in June by the European Central Bank.
After an unprecedented phase of rising credit costs, intended to combat exceptionally high inflation, the ECB should implement a new rate cut on Thursday.
However, “the monetary easing undertaken would not yet produce its effects by the end of the year”, INSEE stressed in its economic report.
Conversely, “the end of the tunnel seems in sight” for household investments, which have been in decline for twelve consecutive quarters, particularly concerning real estate transactions and housing construction, assured Dorian Roucher.
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The outlook should also brighten in the second half of the year for household consumption, the traditional driver of French growth but which has been sluggish for several quarters due to high past inflation.
Taking advantage of gains in purchasing power thanks to wage increases, the revaluation of social benefits and a calming of inflation, households should start spending more again, whereas until now they preferred to play it safe by saving.
For the first time in three years, inflation fell below the symbolic 2% mark over one year (1.9%) in August. It is expected to continue its decline to 1.6% over one year in December.
mpa/ak/spi
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