The French economy slumped in the third quarter

Europe 1 with AFP / Photo credit: Aurore MESENGE / AFP 14:07 p.m., November 30, 2023

France's economic activity slumped in the third quarter, raising fears of a possible recession as the battle against inflation is being won, according to the government. Gross domestic product (GDP) contracted by 0.1 percent between July and September compared to the previous quarter, which was marked by a surprise rebound of 0.6 percent, the National Institute of Statistics said. INSEE has revised downwards its first estimate, published at the end of October, of a modest 0.1% increase in GDP in the third quarter. Activity was penalised by less buoyant investment and household consumption than previously estimated.

This means that if GDP continues to decline in the fourth quarter, France will fall into recession, defined as two consecutive quarters of decline. "We're not far from recession. It wouldn't take much for us to fall into it," Stéphane Colliac, an economist at BNP Paribas, told AFP, predicting activity to stagnate at the end of the year. Despite this air hole, which comes on the eve of the update of France's financial rating by the agency S&P Global, the Minister of the Economy, Bruno Le Maire, confirmed the growth forecasts for the whole of 2023 (1%) and 2024 (1.4%).

Sharp slowdown in inflation

"I maintain my growth forecasts, we will have positive growth in 2023 where we were predicted a recession, and we will have higher growth in 2024 than in 2023," he said on France Inter. He also welcomed a sharp slowdown in inflation, which fell to 3.4% year-on-year in November, from 4% in October. The decline is observed in food, energy and services. "Overall, inflation today has been defeated and it is a real economic success," the government's number two stressed, while admitting that this coin had a flip side.

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"The price to pay for disappearing inflation is higher interest rates, therefore less financing for the economy and therefore effectively an economic slowdown," he said, referring to the European Central Bank's (ECB) aggressive monetary tightening to curb rising prices. On Wednesday, the OECD sharply reduced its growth forecast for 2024 in France, to 0.8% from 1.2% in September, against a backdrop of high interest rates. The International Monetary Fund (IMF) forecasts a 1.3% increase in GDP next year, the European Commission 1.2% and the Banque de France 0.9%.

Household consumption rebounded less than expected

In detail, in the third quarter, the increase in investments was revised down sharply by INSEE, to 0.2% compared to 1% previously estimated. While business investment continued to resist (+0.5%), household investment fell into the red (-1.1%), particularly in new construction. Foreign trade, which was very dynamic in the second quarter, also made a further negative contribution to GDP growth (-0.4%), due to higher imports. Household consumption, a traditional pillar of the French economy, rebounded by 0.6% compared to the second quarter, but slightly less strongly than previously calculated (+0.7%).

Despite a 0.9% drop in household spending on goods in October, due in particular to lower energy consumption due to mild temperatures, Stéphane Colliac believes that "consumption should return to a slightly more normal growth rate" thanks to the decline in inflation and "be the main support for the growth of the French economy next year".