Based in Paris, BNP Paribas' Economic Research Department is composed of economists and statisticians:
The Economic Research department’s mission is to cater to the economic research needs of the clients, business lines and functions of BNP Paribas. Our team of economists and statisticians covers a large number of advanced, developing and emerging countries, the real economy, financial markets and banking. As we foster the sharing of our research output with anyone who is interested in the economic situation or who needs insight into specific economic issues, this website presents our analysis, videos and podcasts.
+ 33 1 42 98 26 77 stephane.colliac@bnpparibas.com
Just as in 2022 and 2023, the French economy got off to a weak start this year and is expected to see its growth accelerate in Q2. Although not in the same way as in previous years, headwinds affected the French economy in Q1 2024. Beyond this purely cyclical upturn, to return to more durable growth, we will need to wait for the return of French consumers, which we also expect to see in Q2. And lastly, corporate investment should once again bolster French growth, with the implementation of the France Green Industry plan in particular.
In Q1 2024, business insolvencies in France reached nearly 15,000 units. This is only slightly less than in Q4 2023, which was marked by a sharp rise. Although the construction and retail trade sectors are facing a significant increase in the number of businesses affected, insolvencies in these sectors remain below historic highs. On the other hand, records were set in business services and in transport and storage services.
Our Western Europe business insolvencies index has risen above its pre-COVID level. However, it is still far below the peaks seen after the 2008 crisis and during the eurozone crisis (between 2011 and 2015). In most countries, the business insolvencies level is now higher than it was before the pandemic. This has been the case since 2022 for the UK and Sweden, which were joined by France, Belgium and Germany during 2023. However, in Germany, Italy and the Netherlands, the insolvency levels are still far below their pre-COVID peaks. These diverging evolutions are also being reflected in sectors, with sharper deterioration in construction, trade and real estate agencies in the countries that have suffered the steepest decline in business activity.
The first indicators available for January point to a continuing weak start to the quarter (after contraction in GDP of -0.3% q/q in Q4 2023), hence our forecast of a further drop in GDP of -0.1% q/q in Q1. Manufacturing production (up 1% m/m in January) remained 1.5% below the figure seen in November, due to a sharp drop in automotive production (down 10% in January from the level seen in November).
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).
In terms of the trade balance, 2023 largely unwound the problems of 2022, which, with itsburdens and shocks, constituted an annus horribilis for French foreign trade.
According to our forecast, inflation is expected to have fallen again in March to 2.4% y/y compared to 3% in February, due to the marked easing in food prices. However, French inflation is expected to then remain between 2 and 2.5% y/y until the end of August, due to depletion of the favourable effects linked to the end of inflation on food and manufactured goods and the continuation of inflation on services, before probably falling below 2% in September.
Since 2022, the French government has reduced several types of production tax. This is the case for tax based on corporate value added (CVAE), which was reduced gradually in 2021 and 2023, and will continue to be phased out in 2024, this process coming to an end in 2027.
French growth has recorded a stop-and-go cycle during the last 4 years. While the Covid period initiated this phenomenon in response to successive lockdowns and reopenings of the economy, subsequent shocks generated precautionary behaviour: lowering inventories and sudden stop of growth at the time of the shock (energy crisis, impact of rising interest rates), and then inventories rebuilding and growth recovery thereafter. This phenomenon could contribute to growth during the course of 2024, after the stagnation recorded in the second half of 2023.
After the youth unemployment rate (15-24 years old) hit its lowest level for more than 30 years at the end of 2021, standing at 16.4% of the working population, it has risen slightly since then, with a figure of 17.5% in Q4 2023 (compared to 16.7% in Q1 2023). Despite being almost 3 points above the Eurozone average, this rate is still substantially lower than the 2019 one (20.8%).
In this audiobrief, Stéphane Colliac describes France’s trade deficit for 2023 main drivers. In addition to a deficit linked to imports of hydrocarbons and a structural deficit reflecting the country’s de-industrialisation, it is also driven by France’s investment in the needs arising from the ecological and digital transition and the electrification of the car industry.
The economic situation in January and February highlights the uncertainties surrounding 2024 with, on the positive side, improvements in the business climate in several countries and resilient labour markets (Europe) or labour markets remaining dynamic (US). Combined with a disinflation trajectory not yet spreading to all sectors (services in particular), all these factors are tending to defer expectations of rate cuts.
Business climate and consumer confidence indices remained stable at a low level in February, highlighting Germany's limited economic impulse in Q1. According to our forecasts, GDP growth should be zero, after a contraction of 0.3% q/q in Q4: growth without momentum (for the time being) but also without a carryover effect (-0.2% after Q4 2023).
The last time growth was significant (in Q2 2023, with +0.6% q/q), this was explained by significant restocking (contribution of 0.5 points, after a contribution of -0.4 points in the previous quarter). A similar restocking trend could occur in Q1 2024, following a negative contribution of inventories in Q4 2023 (-0.7 points). However, this very negative figure suggests that demand in Q1 is particularly subdued, and is not expected to contribute to growth (if growth were to prove positive).
According to our estimate, the trade deficit (on trade in goods) stood at almost EUR 101 billion in 2023, down from 165 billion in 2022, but still up from 86 billion in 2021. This improvement is primarily due to the drop in oil prices and the return to normal of electricity exports and intermediate-good imports. The good news is that the trade balance is also improving in volume terms, albeit to a more limited extent and due to effects that are likely to be one-offs.
The cyclical slowdown in the German economy, which is similar to the one being experienced in the Eurozone, is part of a longer-term stagnation, with Q3 2022 standing out as the last quarter with significant growth. Even so, this figure is biased upwards, as the period benefitted from the post-Covid rebound. While the rise in energy prices was steep enough in 2022 to highlight the clear weaknesses of the German economy, which is specialized on energy-intensive sectors, some of these weaknesses had existed earlier. Against this backdrop, the prospect of a return to growth, which is our scenario for spring 2024, due to the drop in inflation in particular, is still shrouded in deep uncertainty and downside risk.
French growth weakened in 2023, as evidenced by the low figures for the business climate indicators in December. However, 2024 should kickstart the road to recovery. The major drop in energy prices from the levels seen at the start of 2023 will contribute to inflation continuing to fall, which is not expected to be jeopardised by most of the price-cap mechanism still in place for electricity being removed. The upturn in real wages, the healthy state of the aeronautics sector and the continued greening of the economy should enable a soft landing for growth in 2024, with an annual average figure of +0.6%. The expected slight rise in unemployment and the more pronounced increase in business insolvencies pose downside risks, however.
BNP Paribas Economic Research wishes you all the best for 2024. On the macroeconomic front, the highlight of 2023 was the peak in official rates in the United States and the eurozone, but what is in store for 2024?In this video, you can discover the topics and points of attention that will be monitored throughout 2024 for each team: Banking Economy, OECD and Country Risk.
Whereas in 2022, France imported electricity, it became a net exporter again in 2023. This result was driven by a drop in consumption of almost 6% from the autumn of 2022, before the partial rebound in nuclear power and the rise in renewable power allowed production to increase in 2023. Additional efforts will have to be made to meet the targets set for 2050, but what was made in 2023 is a necessary starting point.
INSEE has published its business climate survey for January along with its quarterly industry survey. These two surveys reflect a lack of momentum, without marking any further deterioration. Regarding sales prices, the changes observed are encouraging, although recent events in the Red Sea could reverse the trend.
The economic picture during November and December reveals some divergence between Europe, on the one hand, and the US and Japan, on the other hand.
The business climate indicators highlight a still deteriorated situation, raising fears of another quarter of contraction in activity (-0.1% q/q in Q4 according to our forecasts), following four quarters of stagnation or decline (including -0.1% q/q in Q3). Indeed, the indices linked to current conditions in the IFO and ZEW surveys remained close to historical lows, in both industry and services. Expectations of a small improvement are based on the anticipation of the ECB’s monetary easing in 2024, which remained uncertain for the time being.
The signs of the French economy cooling down intensified in December, with a further fall in the flash composite PMI to 43.7 (44.6 in November). The manufacturing PMI has been below 50 for 11 months and hit a new low in December, as did the services PMI.
In France, the housing sector has undergone profound changes over the past two decades in order to respond to the shift in demand towards building renovation and maintenance in particular. This transformation has gathered pace since 2016 against a buoyant economic backdrop, with a growing real estate market and particularly favourable financing conditions (low interest rates and few business insolvencies). However, while the sector will have to continue to adapt (i.e. the gradual ban on renting poorly insulated dwellings), it is grappling with a deterioration of its economic environment. Rising interest rates and business insolvencies could make this new adaptation more complicated to navigate, at least in the short term.
Business insolvencies continued to rise in October and are now 10% higher than their pre-COVID level (2019 figures) in cumulative terms over the last three months, according to data from Banque de France.
