The French economy is once again feeling the weight of economic uncertainty, as shown by the rebound in the Banque de France's uncertainty indicator, which in July reached its highest level since autumn 2022 (energy crisis). This could weaken a business climate that is already a little less favourable in France (composite PMI at 48.8 in June) than in the eurozone (PMI above 50 for the past four months).
This uncertainty is weighing on demand: despite public finances continuing to provide substantial support for purchasing power (public deficit of 5.5% of GDP in 2023), the household savings rate remains high (17.6% of gross disposable income in Q1 2024). Household confidence, which eroded again in June (to 89, from 90 in May 2024), reflects this wait-and-see attitude, despite gross monthly wages growth in Q1 (+3.3% y/y) outstripping inflation (+3% y/y according to the harmonised index).
This has resulted in constrained demand, but no halt to the transitions that are underpinning French growth: the growth in services and an increase in the employment rate. The business climate has even improved in services (above 100 for the past four months, according to the INSEE survey). The labour market continues to create jobs (75,000 in Q1), while the INSEE employment climate is stable (101 on average in Q2 as in Q1). Our nowcast for France (0.3% q/q for Q2, in line with our forecast) bears witness to this resilience, which may once again have boosted French growth in Q2.
However, there are other transitions or transmissions that uncertainty could delay: firstly, the green transition, with the share of electric vehicles levelling off in new car registrations (17% in H1 2024 compared with 18% in H2 2023), in a generally stable national market (total registrations up 2.3% y/y in H1). Secondly, households' intention to buy a property (an average of 7.5% of households in Q2 compared to a low of 7% in Q3 2023, according to the INSEE household survey), despite the fact that the interest rate cuts initiated by the ECB are beginning to be passed on to interest rates on mortgages. These two shadows suggest that French growth is likely to remain around its current low point (slightly above 1% year-on-year) over the next few quarters.
Article completed on 17 July 2024
