EcoTV Week

France: After inflation comes recession?


After inflations comes recession? Not systematically, but the nature of the inflation observed since early 2022 lets expect an increased risk of recession for the French economy. During H1 2022, already, the French economy has avoided a recession mainly thanks to the recovery of tourism. However, a couple of shocks has materialized, from drought to higher energy prices and including increasing constraints to energy supply. Corporates have already planned production cuts and the probability for a recession during the next 6 months is increasing.


The French economy has registered during H1 2022 a sizeable shock driven by an inflation rate back to mid-80s highs. Inflation has significantly accelerated from March, where the oil price in Euros has increased by 23% m/m, weighing on household consumption (-1.2% q/q during the 1st quarter)

This shock has reduced GDP growth but without depleting it completely, as the French economy has benefitted in parallel from Covid restrictions unwinding. This has driven a visible recovery of tourism and leisure activities, which where the main drivers of positive growth performance during the 2nd quarter (+0.5% q/q).

However, without these positive contributions, we estimate that growth would have converged towards 0%, with the following implications: excluding tourism and leisure, the French economy exhibited -0.2% q/q growth during the Q1 and 0% during the Q2: the French economy was on the verge of recession already during H1 2022. And this situation was only avoided through covid restrictions’ timely unwinding.

What about next months? The favorable impact of tourism recovery should last only until the 3rd quarter and should not drive GDP growth thereafter.

And, already, a couple of new obstacles to growth are already materializing. The drought that intensified during last summer is already weighing on several aspects, such as electricity production. Its decrease observed since March (as many nuclear plants were closed for maintenance) has intensified at -23% y/y in July. A lower agricultural output has also already impacted inflation through the highest m/m increase of Insee CPI’s food component since January 2002, at 1.7% m/m in August.

From now on, an even more impactful shock is expected to materialize during next weeks. First, energy prices are already playing on the downside as the observed increase of wholesale prices is weighing on corporates, as the volume of electricity supplied through the lower tariff called Arenh is capped. Additional needs have to be financed at market prices, particularly for corporates that had to renegotiate a new contract after the expiration of the former: a sizeable impact on costs that is already detrimental for some corporates.

Moreover, the prospect for constraints to energy supply during the next winter season may weigh further more on French GDP growth, whereas increased input costs already nurtured decisions to decrease activity levels in some of the most energy-intensive sectors, such as metals or chemicals.

As a matter of fact, the manufacturing sector already suffered from a noticeable drop of its order books: from 7.3 months to 5.9 months between February and August, a drop that accelerated recently as half was observed during the last 2 months. And a drop that was even more sizeable in some sectors, such as plastics/rubber, wood/paper and metals. All these arguments suggests a significant recession risk for the French economy during the next 6 months.

Stéphane Colliac
Team : OECD economies