What if Bruno Le Maire and Bercy were finally right? The first estimate from INSEE on French growth came out this Tuesday morning and surprisingly, the figures are rather good. GDP thus grew by 0.2%. This is more than what was announced by the National Institute of Statistics, which expected 0%.
“ To all those who want to believe that our economy is at a standstill: the facts are stubborn. French growth is progressing. This is a new sign that reflects the solidity of our economy », welcomed the Minister of the Economy, just after the INSEE publication.
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An increasingly credible objective
Enough to restore credibility to the government on its annual forecast. Bercy originally expected 1.4% growth this year, a forecast which had also made it possible to construct the 2024 budget, but which many found too unrealistic. Bruno the Mayor then revised his copy in February, now announcing 1%. A more pragmatic objective but which still seemed out of reach for some a few weeks ago.
“ With these first quarter figures, better than expected, the government’s forecast remains in a high range but is no longer unattainable. While some time ago, it was more complicated…», Points out Mathieu Plane, deputy director at the French Observatory of Economic Conditions (OFCE).
To succeed, the government must count on growth of 0.3% per quarter. “ It’s still not nothing “, estimates the economist “ but it’s playable “.
The 1% hypothesis is therefore possible, “ unless activity declines in the second part of the year, interest rates do not fall, or positive business investment is ultimately just a flash in the pan “, also argues Denis Ferrand, general director of Rexecode.
“ Last year, everyone laughed when Bercy expected 1%, and ultimately he was the best forecaster », underlines Jean-François Robin, director of research at Natixis (BPCE group). Even more confident than the government, Natixis is counting on growth of 1.1% for 2024.
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Consumption and investment on point
Several reasons support this good outlook. Growth in the first quarter was notably driven by household consumption. It increased by 0.4%, after having already rebounded to 0.2% in the previous quarter. A result which can be explained primarily by a slowdown in inflation. “ We are seeing a rebound in purchasing power with an increase in social benefits at the start of the year, particularly pensions. », explains Mathieu Plane. Added to this is also an increase in real wages compared to inflation.
The latter should continue its decline this year. In April, it reached 2.2% over one year, compared to 2.3% in March, thanks to the deceleration of food prices. “ We believe this trend will continue throughout the year. », notes Jean-François Robin.
But what was more surprising was the rebound in investment on the business side. “ We had the idea that investment was going to be the missing link to growth in 2024 », Raises Denis Ferrand, particularly in relation to the cash flow situation of certain companies, the rise in insolvencies which reached a record level in 2023, and less optimistic anticipated demand.
Furthermore, Europe’s main trading partners are also recovering. In detail, GDP increased in the first quarter in Germany, Italy and Spain. In the first quarter, investment reached 0.3% after -0.9% in the fourth quarter of 2023.
“ This morning’s figure is a good surprise but it must be confirmed over time, and it is not yet won “, adds the economist, “ we maintain that this year growth will be dependent on consumers “.
They still need to dissave. Another downside: household investment, which has shrunk sharply after the rise in interest rates increased the cost of credit.
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Reduce the deficit, but at what cost?
Growth is a key point for the government if it wants to reduce the public deficit. “ Half a point more growth lowers the deficit by 0.25 points », Supports Mathieu Plane. Especially since the deficit has slipped in 2023, to 5.5% of GDP. Far from what Bercy had anticipated, at 4.9%. This year, the executive expects 5.1% of GDP, compared to 4.4% originally. And even more ambitious, he wants to reduce it to 3% by 2027, to once again meet European criteria. An objective which is not supported by the rating agencies Moody’s and Fitch, which nevertheless maintained their rating on French debt last Friday.
To get back on track, the executive plans to cut back on public spending. He has already validated 10 billion euros in savings in state spending and is seeking to cut another 10 billion euros in 2024. However, who says less spending, often means less growth. “ The question is when budgetary measures can have an impact on growth », asks Mathieu Plane.
Especially since over this quarter, a good part of the growth is also explained by… public spending. “ This is a factor that has contributed to the growth », explains Denis Ferrand. For growth to continue its momentum, all that remains is to keep our fingers crossed.
