eco TV Week

France: Towards a EUR 100 bn trade deficit in 2022?


France has registered a record trade deficit in 2021, about EUR 85 bn. Oil prices were the main trigger of the deterioration compared to 2020. However, in the medium run, the main structural evolution is the deepening of the deficit on industrial goods: by about EUR 25bn during the last 10 years to 50bn in 2021. In 2022, the trade deficit should reach EUR 100 bn: a sizeable burden on French’s purchasing power.

Stéphane Colliac

TRANSCRIPT // France: Towards a EUR 100 bn trade deficit in 2022? : February 2022

France has experienced its worst trade deficit in 2021, at EUR 85bn. Compared to 2020, its deterioration is mainly the byproduct of higher oil and gas prices. As a result, the energy deficit has increased by EUR 18bn in 2021.

The record overall trade deficit was also driven by the vanishing trade surplus on aeronautics during the last two years: the shortfall reached about EUR 15bn. In 2021, the exports of the sector were 40% below their pre-Covid level.

However, one can’t see the forest for the trees. France has seen a steep deterioration of its industrial goods deficit during the last 10 years. On all industrial goods (including aeronautics), the deficit has reached about EUR 50bn in 2021, against EUR 25bn in 2011. The loss remains equivalent to EUR 20bn even after excluding the shortfall driven by aeronautics.

Today, when domestic demand increases, this means a higher import content compared to some years ago. In 2021, household demand for electronics and electrical equipment has increased. In parallel, the manufacturing sector faced higher demand and had to import more intermediate goods in order to increase its output: mainly plastics and metals.

This overall landscape will not be easily reversible, as industrial production is resulting from location choices made for several years. Moreover, the energy trade deficit should increase further as average energy prices should be higher in 2022 compared to 2021. By the way, France is likely to reach a EUR 100bn trade deficit in 2022. This figure is largely driven by a price effect, which means a burden on French’s purchasing power in 2022.

View more videos Eco TV Week

On the Same Theme

Reconciling short-term and medium-term challenges 7/26/2022
Over the next five years, French economic policy will have to continue to deal with structural issues, such as full employment, the delay of companies in terms of robotisation, the competitiveness of companies and the place of industry. It will most likely also continue to focus, at least in the short term, on supporting household purchasing power, as it has done since 2019. These projects, which will have to be carried out in parallel, will have to be reconciled with the cost of the ecological and energy transition against the background of public debt that has already risen sharply and interest rates that are moving higher, albeit in a controlled way.
An economy weakened by the spread of inflation  7/4/2022
Inflation has continued to accelerate, at 5.8% y/y in June, and has not yet reached its peak. Most significantly, the energy component saw a further monthly rise of 5.3% in June, having already risen by 9% in March. Not only had the initial shock not yet fully passed through into other prices (food, manufactured goods, services), but this new increase signals a further acceleration in inflation, particularly in the food component which suffered the most from the initial shock (1.4% increase month-on-month and 3.1% over 3 months): In June, this food index has increased by 5.7% y/y, below July 2008’s 6.4% peak, but should rise above and reach 9% in December 2022, according to our forecasts.
The shock to purchasing power is smoothed but not fully eliminated 6/29/2022
The French economy is stuck between three developments with different effects: an inflation shock that is denting consumer spending, a negative supply shock (supply constraints in industry) and the lifting of public health restrictions (benefiting growth as of the second quarter, having held it back in the first quarter). Government measures that have limited inflation were unable to prevent negative growth in the first quarter. However, the positive impact of the lifting of public health restrictions and a rebound in purchasing power should allow for a recovery towards positive growth in the third quarter (+0.3% q/q).
France: When the construction sector goes well, so does the economy 6/24/2022
“When the construction sector goes well, so does the economy”. This motto was emblematic of  the French business cycle behaviour over the last decades. As a matter of fact, current order books are still at their record level, roughly at 9 months. Against this background, the sector is experiencing heightened pressures, such as cost pressures, which are increasingly reverberating on prices and margins. Moreover, in parallel, demand is already decreasing as reflected by new orders. As a result, sector’s activity may well ease in the future.
Economic data is more mixed than bad 6/12/2022
The latest economic data from INSEE have provided detail on the timing and scale of the purchasing power shock to household consumption, with three figures standing out: the 1.8% q/q fall in the purchasing power of gross disposable income over the first quarter; the revised fall of 1.5% q/q in household consumption (from -1.3% in the initial estimate); and the downgrade in GDP growth to -0.2% q/q, from 0% in the initial estimate.   
France: housing development and food head the list of retail price rises 6/7/2022
Inflationary pressures in France continue to grow. The INSEE retail survey for May set a new record, with a balance of opinion on expected selling prices that reached 43, from 36 in April and a long-term average of -2. The housing development sector saw the biggest share of companies forecasting price increases. This echoes the increase in building materials prices and reflects strong household demand: on average over the last three months nearly 25% of households in the INSEE consumer survey have indicated that they intend to spend on housing development (against a long-term average of 21%). This said, the proportion is down on the figure of 26.7% reported for October 2021, suggesting that this demand has wilted somewhat in the face of strong inflation. The food sector was next in the list of sectors having the largest share of companies expecting to increase their prices. This would follow on from some already hefty increases as visible in the food component of the consumer price index, which rose 3.2% between February and May 2022. These increases are likely to continue: our estimates suggest they will reach 4.2% between May and December 2022, in line with the sector’s expectations. Overall, the further increases in retail prices suggested by INSEE’s survey imply that inflation has not yet peaked, despite having hit 5.2% y/y in May (5.8% y/y on the harmonised index), the highest level since 1985. Our estimates point to inflation topping out at around 6.5% y/y in September.
Further contraction in consumer spending likely in the second quarter 5/15/2022
Inflation is continuing to spread among the various components of the consumer price index (CPI). The energy component fell slightly in April (-2.5% m/m) after the government introduced a fuel rebate, but that decline was more than offset by faster inflation in other components of the CPI. Food prices in particular rose by 1.4% m/m in April, the sharpest increase for 20 years, beating figures seen in previous waves of food price inflation in 2007-08 and 2011. Food was the main contributor (0.2 points) to monthly inflation in April (0.4% m/m).
France: Supply-side constraints and inflation are weighing on growth 4/29/2022
GDP growth should decrease markedly in France during 22H1, as a result of supply-side constraints (weighing mainly on the car and construction sectors). Purchasing power losses add to these constraints and should have their wider impact on sectors affected by the strongest price increases, such as energy and food. Growth should recover from Q3, as income growth should accelerate and improve household’s purchasing power.
Inflation weighing on household consumption 4/18/2022
French inflation hit 4.5% y/y in March according to the final INSEE estimate, due mainly to another jump in energy costs (up 9% in March alone, a 29.2% increase year-on-year). At the same time, this inflation appears to be starting to bite when it comes to consumer spending on goods: having fallen significantly in January (-2% m/m), this saw only a limited recovery in February (+0.8% m/m). The latest INSEE survey of household confidence was anything but reassuring about the prospects of a short-term rebound. Consumer confidence has fallen sharply, particularly because of fears of further price increases: the balance of opinion on the outlook for prices rose by 50 points, taking it to record levels.
Feeble growth but no recession 4/14/2022
Inflation continued to rise in early 2022 to the point that it began to erode household confidence in March. These purchasing power problems foreshadow a decline in consumer spending. With fiscal support measures limiting the increase in inflation (by nearly 2 percentage points in April), growth is expected to remain slightly positive (0.3% in Q1 and 0.1% in Q2 according to our estimates).

ABOUT US Three teams of economists (OECD countries research, emerging economies and country risk, banking economics) make up BNP Paribas Economic Research Department.
This website presents their analyses.
The website contains 1811 articles and 362 videos