The Olympic Games were a brief positive interlude, which has now come to an end, as shown by the services PMI, which peaked at 55 in August in the midst of much more lacklustre performances. However, this Olympic Games effect should have buoyed growth in Q3 (0.4% q/q, according to our scenario). Our nowcast is a little lower (0.3%) and highlights the risk that, excluding the Olympic Games effect (estimated at 0.2% by INSEE), the French economy slowed in Q3 (after 0.2% q/q growth in Q2). It is likely to slow further in Q4, judging by the recent deterioration in the services sector (PMI at 48.3 in October after 49.6 in September) and in industry (production PMI down from 44 to 42.5).
The rotation in the determinants of growth should continue to strengthen. While household consumption and investment have weakened since the start of 2022, business investment has only followed this trend from mid-2023. It should continue to deteriorate in the second half of 2024, if we are to believe the deterioration in order books in the B2B sectors (INSEE manufacturing industry survey), while household demand should strengthen. This is driven by the recovery in household confidence (95 in September, +4 points in two months), even though it eroded in September (-1 point to 94).
Disinflation, which was significant in September (1.4% y/y, according to the harmonised index, compared with 2.2% in August) and is set to continue (regulated electricity tariffs are set to fall by 9% in February 2025), is also playing a favourable role. However, the support provided by household demand is uncertain. Firstly, due to inflation in services: with increases expected in late 2024 and early 2025 (medical consultations, home and car insurance, and supplementary health insurance). Secondly, the employment climate measured by INSEE, which has been below 100 for the past five months (97 in October), bears witness to a cooling in the labour market. The recent fall in business creations (-4% q/q in Q3) also points to a deterioration.
Overall, we expect French growth to fall in Q4 (0.1% q/q) as the headwinds strengthen. Although car purchases could temporarily rebound (launch of new models and purchases in anticipation of a potential increase in the penalty on the most polluting vehicles in 2025 could, in particular, support consumption), the uncertainty surrounding the current budgetary process could cancel out this effect.
Article completed on 29 October 2024
