PARIS (Reuters) – The outlook for 2024 is improving marginally thanks to disinflation which will support consumption, but the caution of households and businesses could limit growth prospects, INSEE said on Wednesday in its economic update .
According to the statistical body, France’s gross domestic product (GDP) would increase by 0.2% in the first and second quarters, in line with its December estimates, which would bring the growth gain to 0.5% in mid-year.
The government, for its part, expects growth of 1.4% this year, compared to 0.6% expected by the OECD and 1% by the IMF.
“The restart of consumption would support activity (…), but French growth would remain relatively sluggish, hampered by the spread of interest rate increases which slow down investment,” summarizes INSEE.
The slowdown in inflation and the rebound in wages and social benefits would support consumption which would constitute “the main driver of domestic demand”, underlines the institute.
INSEE forecasts a decline in inflation to 2.6% in June, in line with its December estimate, and after 3.1% (preliminary estimate) in January.
The contribution of food and manufactured goods to inflation would become negligible, but services will still help to support price dynamics.
“It is now the prices of services, driven by wage dynamics, which are supporting inflation: in June 2024, they are expected to increase by 3.0% over one year,” notes INSEE.
The economic situation would, however, remain hesitant, with the business climate having fallen below its long-term average in October, while business surveys show that the diagnoses made by the different sectors on activity are shared.
“The latest data show the image of generally hesitant growth, with marked disparities between sectors,” notes INSEE, which emphasizes that the tightening of financial conditions weighs on investment by businesses and households.
“On the supply side, certain sectors would continue to get closer to their production potential,” adds the institute, which refers to the gradual lifting of supply constraints and the restarting of reactors.
(Written by Corentin Chappron, edited by Kate Entringer)
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