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

No big surprises in the figures published on Friday 28 October by INSEE. As expected, growth slowed slightly in the third quarter, to 0.2%, after jumping 0.5% in the spring. According to the latest forecasts, French economic activity benefited from a slight recovery in the production of services (+0.5%), while consumption began to slow down (0%), due in particular to the drop in food consumption ( 1.6%) and the very sharp drop in spending in the hotel and restaurant sector, after an exceptional summer.

Inflation higher than expected

For forecasters, however, this relative resilience should not hold over the coming months. With inflation rising sharply again in October (to 6.2% against 5.6% in September), purchasing power runs the risk of falling at the end of the year. A 1.8% drop is expected in the fourth quarter, after a 1.7% increase linked to the revaluation of the minimum wage and social minimums. This drop will weigh a little more on household consumption, the great engine of the French economy.

“It’s a bit of bad news for October: inflation is a bit higher than expected. And most importantly, it no longer just affects energy, which means that it will be increasingly difficult to fight against it.” says Sylvain Bersinger, economist at Asterès. Economic activity therefore risks being further affected in the coming months by a very deteriorated international context, with the energy crisis affecting production, supply problems that cannot be resolved and, above all, all the uncertainties about the future of the Ukrainian conflict.

France better armed in the face of difficulties

But in its misfortune, France has been able to resist a little better than its large European neighbors. According to the latest IMF forecasts, published in mid-October, Germany (−0.3%) and Italy (−0.2%) are expected to 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 due to the significant weight of industry in their GDP. For once, France will therefore be able to rejoice in having a more service-oriented economy.

Another (small) cause for celebration is the good performance of the investment. Despite the context, it increased 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 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 entrepreneurs has stabilized since August, after the collapse following the war in Ukraine. It even increased slightly in October, by 0.1% in one month. As for the labor market, it too retains surprising dynamism. According to Urssaf, job filings longer than a month totaled 2.6 million in the third quarter, which is a historically high level, 18% more than in the fourth quarter of 2019, just before the health crisis.

In this context, more and more observers have a negative view of the acceleration of the rate hike by the ECB. On Thursday, October 27, it just announced a fresh 0.75 point hike in its main key rates. By tightening the credit conditions for businesses to fight inflation, the risk is in fact that of accelerating the entry into recession of the economies of the euro area. “If there were 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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