Eco Pulse

France | Moving towards a delayed recovery


Q1 got off to a bad start, with a drop in manufacturing production in January (-1.6% m/m) linked to the shutdown of oil refineries for maintenance (with new difficulties in March), and a downturn in the automotive sector (supply problems, followed by a drop in demand affecting the production). At the same time, January’s foreign trade data do not suggest a rebound in imports of intermediate goods (inputs for other sectors).

Compared to our growth forecast (identical to our nowcast) of +0.1% q/q in Q1, this “ignition delay” would constitute a downside risk. The INSEE took this into account in revising its forecast from 0.2% to 0% q/q (Banque de France maintaining a forecast at 0.2% q/q, due to the good evaluation of market services). Conversely, this should generate an upside risk on our forecast for Q2 (0.2% q/q), incorporated by the INSEE into its own forecast (0.3% q/q).

Nor has the momentum of recovery been clearly triggered from the point of view of demand indicators, as illustrated by the decline in consumption of goods in January (-0.3% m/m) and the continuing hesitant rise in the household confidence index. Against this backdrop, an acceleration in short-term growth would be the consequence of production catching up with the relative lag in Q1.

However, other factors are expected to provide a positive boost to demand in the coming months. These factors are linked to fiscal support, with the late implementation or temporary restriction of the scope of this support possibly having impacted activity up until now: the launch on 14 March of the new tax credit for investments in green industries (C3iV), and on 14 February of the new version of the green bonus for the purchase of a car, and the easing, on 8 March, of the eligibility criteria for MaPrimeRénov' (restricted at the beginning of the year regarding "mono-renovation" works).

Furthermore, disinflation is real, with the Harmonised Index of Consumer Prices only rising 3.1% y/y in February compared to 5.7% in September 2023, even though this has not, for the time being, been reflected in a rebound in household consumption. However, the disappearance of inflation on the prices of food and goods should be confirmed (following the moderation of expected price changes in the latest INSEE business climate survey), a positive signal for households, along with the good performance of the labour market (stability of the employment climate, measured by the INSEE, at 102 in March).

Article completed on 27/03/2024