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In its latest economic report, INSEE sees the French economy growing at the rate of 0.25% in the 2nd quarter and inflation reaching 5.4% in June. Without a tariff shield on energy, the increase would have exceeded 7%.
(Boursier.com) — French GDP growth, which had been zero in the 1st quarter, should pick up again in the 2nd quarter despite the consequences of the Ukrainian conflict and the coronavirus crisis, to reach a modest increase of 0.25% compared to in the 1st quarter, according to INSEE.
In its latest economic report, published on Monday, the statistics institute specifies that the growth overhang at mid-year for 2022 would be +2.6%, after +7.0% for the whole of 2021 At this stage of the year, the available data suggest a scenario of modest growth rather than a contraction in activity.
Many uncertainties persist
But INSEE warns that significant risks surround its forecasts, due to the many uncertainties: rising energy prices, supply problems, paralysis of the Chinese economy linked to its “zero Covid” strategy, difficulties in the sector. real estate and finally, the tightening of monetary policies, particularly in the United States.
In the 2nd quarter, the negative supply shocks (Covid and Ukraine) will continue to fuel inflation, which should reach 5 to 5.5%, and would have exceeded 7% without the “tariff shield” and “rebate” measures. the pump” taken by the government. In detail, consumer prices rose by 4.8% in April over one year, and should increase by 5.2% in May then by 5.4% in June.
Catch-up effect of consumption in the hotel and catering industry
In the first quarter, household consumption suffered from the health situation, then from the uncertainty and the acceleration of prices linked to the Ukrainian conflict and the sanctions imposed on Russia by the West.
At the start of the second quarter, explains INSEE, the health situation is significantly better in European countries, but has deteriorated in China, with a direct impact of the “zero Covid” strategy on production in this country. As for the geopolitical situation in eastern Europe, it remains “particularly gloomy”, notes INSEE, which underlines “the relative resistance of the business climate” despite the rise in uncertainty.
Among the positive signals for the 2nd quarter: household consumption, the main driver of growth, which had fallen sharply in the 1st quarter (-1.3% in volume), should rebound slightly between April and June, thanks to the effects of catch-up in certain sectors such as hotels and restaurants, and the good resistance of the job market. Insee also does not exclude that to maintain their standard of living, households draw on their savings.
Purchasing power down due to inflation
Even if INSEE dismisses the risk of a recession, the rise in prices will weigh on household consumption this year and on their purchasing power. The loss of purchasing power would thus be 1.5 points in the first quarter (up to 1 point as a result of the loss of the inflation allowance which has been fully integrated into the income for 2021), then 0, 5 points in the second quarter.
Insee anticipates in particular a acceleration in food product prices, with a price increase that could exceed 6% over one year in June. Inflation should also be transmitted to the prices of manufactured goods and services, in particular due to the revaluation of the minimum wage in May. Core inflation (excluding food and energy) should thus rise from 2.5% in March to 3.5% in June.