The French economy is marked by growing signs of cooling, in terms of economic activity, employment and inflation. While growth has so far remained in positive territory, the INSEE business climate, which fell to 97 in November (compared to 100 between July and September), points to a deterioration. According to this survey, the decline in economic activity already present in part of the economy (housing, food trade) has spread to industry, new construction (excluding housing) and the motor vehicles trade.
Until recently, all these sectors had continued to benefit from a well-filled order book, which is now emptier (the backlog of orders having been processed and there being fewer new orders). In this context, household orders for private vehicles fell by 12% y/y in the first 10 months of the year (-26% for light commercial vehicles) according to the Plateforme de l’automobile. Against a backdrop of high interest rates, the proportion of French households planning to make a major purchase immediately fell to a new all-time low (5.2% in October according to the European Commission).
The slowdown in demand is contributing to the ongoing disinflation (4.5% y/y in October according to the harmonised index, compared to 7.3% in February and 5.7% in September). This is being reflected in the prices of manufactured goods (stable since April), alongside a drop in volatile components y/y (with food prices stabilising since June). The increase in services prices (3.2% y/y in October) is now the biggest contributor to inflation, supported by wage growth, but is expected to ease in 2024 as consumer prices and wages slow.
The deterioration in the labour market since Q2 is moving in this direction. Moreover, the wage slowdown seems to have already begun: in Q3, the gross monthly wage only increased by 4.2% y/y compared to 4.6% y/y in Q2. However, while payrolls contracted by 18,000 units in the private sector in Q3 after moderate creations in Q2, this can be explained in part by a trend reversal on apprenticeship contracts (-100,000 between March and August, a bigger drop than the usual seasonal movement, -60,000 between those same months in 2022).
Overall, the French economy seems to be moving towards stagnation, as reflected in our growth forecast and our nowcast for Q4 (0% q/q).
Stéphane Colliac (completed on 23 November 2023)
