French growth surprised on the upside in Q1, hitting 0.2% q/q as a preliminary estimate, supported by household consumption and business investment in services. Our forecast for Q2 is for more of the same (our nowcast, at 0.3% q/q, even suggests an upside risk), confirming the return to slightly stronger growth, after a second half of 2023 at +0.1% per quarter.
In fact, the business climate suggests that the favourable momentum for services is continuing. The PMI published by S&P Global has been higher in the last two months (51.3 in April and 49.4 in May) than the levels hit since June 2023. While growth is being driven by services, the momentum in goods is less favourable, with output down by 0.9% q/q in Q1 (-0.1% for manufacturing alone).
This same divergence can be seen in household consumption, which owes most of its growth (0.4% q/q in Q1) to market services, while goods consumption was flat. This is a structural phenomenon, with leisure playing a significant role, as well as the increasing digitalisation and uberisation of consumption. This trend has accelerated further as a result of the cumulative inflation since the start of 2022 and rising interest rates, which have weighed more heavily on spending on goods.
Despite the continued fall in inflation in April (2.4% y/y, according to the harmonised index), household confidence is still far below its historic average (100), standing at 90 in May. However, the balance of opinion on the fear of unemployment remains below its long-term average, standing at 27 in May. This trend is consistent with an unemployment rate (7.5% in Q1) that has rebounded only slightly, despite the weak growth seen since the start of 2022. Household consumption is expected to continue to grow, albeit unevenly between goods and services.
Article completed on 29 May 2024
