French growth will be higher than expected in 2022 (Insee)

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The French economy is still in a zone of turbulence. After a scorching summer marked by record heat across the country and a devastating drought, the energy crisis in Europe could cause a shock wave on activity in France as winter approaches. However, thn spite of these bad signals, INSEE has revised upwards its growth forecasts for gross domestic product (GDP) for the year 2022 by 0.3 points to 2.6% against 2.3% last June in its latest economic update unveiled on Wednesday 7 September. This revision is due to better results than expected in the second quarter (0.5% instead of 0.25%)”, has declared the head of the business cycle department, Julien Pouget during a press briefing. The lifting of health measures in the spring caused a rebound in activity in accommodation and catering, and even tourism. But this improvement could quickly fade.

The energy crisis threatens the tricolor economy

As for the last two quarters of 2022, activity could slow down significantly. Indeed, the statistics institute anticipates only 0.2% GDP growth for Q3 and 0% for Q4. Suffice to say that the end of the year is likely to be very gloomy economically.The period remains marked by a conjunction of exogenous shocks. The health crisis is still there even if it affects Western economies less. The war in Ukraine raises fears of an energy crisis. Finally, the climate crisis has weighed on agricultural production, the navigability of the Rhine, the first river and commercial artery in Europe”, summarized the statistician.

Six months after the start of the war in Ukraine, the black scenario of a total cut off of Russian gas in Europe is becoming clearer. Recently, the Russian giant Gazprom announced that it had cut off its deliveries to Engie. Even if France is less dependent on Russian gas than Germany, for example, this cut risks suffocating a good part of the tricolor industry dependent on fossil fuels. In its central scenario, INSEE did not mention the phenomenon of recession, but more and more economists are mentioning this possibility for a few months of winter.

In addition, monetary tightening by the European Central Bank (ECB) could affect French activity. After conducting an accommodating monetary policy, the Frankfurt institution is preparing this Thursday, September 8 to announce a new rate hike for the coming months. This would put a brake on the European economy.

Serious tensions on the offer

The various surveys carried out by the statistical institute indicate that supply tensions have peaked in recent months. Last July, half of the industrial companies questioned and a third of the service companies expressed difficulties. ” Supply tensions have risen permanently above demand difficulties [Les carnets de commande, NDLR] in industry and services. These difficulties may relate to supply, personnel, indicated Julien Pouget. These obstacles have repercussions on production prices in most sectors of the French economy.Producer prices have increased by 35% for agriculture, 20% for industry and 7% in services over the last two years”, underlines the conjuncturist.

Purchasing power at half mast

On the household side, the situation is hardly more favourable. After having fallen sharply in H1, purchasing power should increase slightly towards the end of the year. Overall, purchasing power per consumption unit should fall by 0.5% in 2022 despite the aid implemented. It should be remembered that most salaries in France, with the exception of the minimum wage, are not indexed to inflation. This means that real wages, ie taking inflation into account, have been falling steadily since the beginning of the year.

Furthermore, some of the measures implemented in the purchasing power package » voted by parliament in the middle of summer are not indexed to the consumer price index either (revaluation of the index point for civil servants by 3.5%, revaluation of pensions by 4%). At the same time, the wage increases planned in companies may not compensate for the soaring prices. As a result, households have started to tighten their belts. In the second quarter, the savings rate began to decline after the two long years of the pandemic. During this period, the shutdown of the economy had led to a surplus of savings in certain categories of the population who used to consume in restaurants, hotels or even during holidays. At the bottom of the distribution, households had meager savings but inflation has already eaten away at those woolen socks.

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Inflation revised slightly downwards

In 2022, inflation could reach 5.3% on annual average against 1.6% in 2021. Here again, INSEE has revised its forecasts favorably compared to its June economic update. At the time, the public body was counting on a price increase of 5.5%. This downward revision is partly explained by the strengthening of the discount at the pump of 30 euro cents scheduled for September and October.

On the other hand, inflation could continue to rise from November with the end of this aid and the stalemate in the conflict in Ukraine. The prospect of geopolitical detente this fall seems to be receding. Russia and Europe are engaged in a standoff that will last on the energy front. This confrontation risks fueling energy inflation, the main driver of soaring prices on the Old Continent.

Although the government is urging companies to implement sobriety plans, current gas reserves would be far from sufficient if the winter were to drag on. To this gas crisis is added that of electricity in France. The many faults and corrosion problems on the French nuclear fleet will not be resolved in a few weeks either.