After a sizeable performance in 2021, the GDP growth of the French economy has reduced markedly during 22H1, despite the unwinding of the bulk of the Covid-19 restrictions, which still benefits to the French economy.
Supply-side factors are limiting growth, particularly as a result of a shortage of materials in the car and textile sectors, thus playing on the downside on consumption. Moreover, inflation has accelerated to 4.5% y/y in March and should increase again above 5% before the end of the 2nd quarter, despite a price cap on gas and electricity prices and a discount on gasoline prices.
Households’ purchasing power should have reduced by 0.6% during the Q1. Purchasing power losses are playing on the downside on private consumption with even a wider magnitude during the 2nd quarter, as inflation should broaden. For the first time since one year, energy should explain less than half of inflation during the Q2, particularly as food prices are accelerating.
Purchasing power issues should reduce from the 3rd quarter, since income growth should begin to adjust to higher inflation, as e.g. the minimum wage, civil servants’ wages and pensions should start to increase. It should help private consumption to recover.
External trade should also become a driver of French growth, as higher import prices have resulted into lower import volumes. In parallel, exports of services have increased, particularly driven by sea freight transport. The recovery of tourism receipts should also contribute to GDP growth during Q3.
However, investment growth should decrease as the same constraints affecting consumption will bind, but without the same policy support. First, supply side constraints are also weighing on capital goods and the construction sectors, including through recruitment problems and rising input costs. Moreover, recent housing price increases will reduce households’ willingness to invest along 2022.
