As disinflation slows, consumption remains very weak

Disinflation continues in France, but less rapidly than before

Consumer prices in France rose 2.9% year-on-year in February, compared to 3.1% in January, thanks to a year-on-year slowdown in food prices (+3.6% compared to +5.7% the previous month), manufactured products (+0.3% against +0.7%). %) and services (+3.1% against +3.2% in January). In contrast, as household electricity bills rose by 10% in February due to the end of various support mechanisms, energy inflation rose again to 4.4% from 1.9% in January. Inflation was 3.1% in February, up from 3.4% in January, according to the key harmonized index for the ECB. This data once again confirms our view that the ECB will be patient before starting its rate cut cycle. We still expect the first rate cut in June and a total of three rate cuts this year (75 basis points in total).

The rest of the way to 2% inflation will be more complicated

Going forward, inflation should continue to normalize gradually over the coming months, But disinflation will now be very gradual and will take time

. We will probably have to wait until the end of 2024 for the national index to reach 2% inflation, and until spring 2025 for a consistent index. In summary, on the road to 2% inflation, the easiest part of the path has already been achieved and the rest will probably be more complicated.

In particular, inflation in services is likely to remain buoyant and close to 3% in the coming months. Surveys of companies in the service sector show that more of them are planning price hikes once again. In addition, unlike other European countries, household energy bills will not decrease in 2024 due to the end of various government support mechanisms, which will keep energy inflation in positive territory, despite falling energy prices. Observed gas on world markets. Prices of manufactured products should continue to moderate and may show a negative inflation rate in the coming months, against a backdrop of weak global demand.

Despite improved GDP figures, the economy is still stagnant

In addition, INSEE today published a new estimate of GDP figures for the fourth quarter of 2023. The data was slightly revised upwards and showed a quarter-on-quarter growth of 0.1% compared to the previous estimate of 0%. In detail, investments were weaker than announced, falling 0.9% in the quarter, while household consumption was slightly weaker and flat in the quarter. The contribution of domestic demand therefore remains unchanged, while the contribution of foreign trade is revised downwards and the contribution of stocks is largely revised upwards. An analysis of the details makes it possible to understand this The revision of the national accounts does not change the diagnosis: France was in stagnation at the end of 2023, as in the third quarter of 2023.

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This new data also does not change the projection for 2024. The year started with a markedly lower level of activity. Household consumption data for January, also released today, confirms this. Despite the recovery in confidence, Consumption of household goods has declined Volume rose 0.3% in January, compared with a 0.3% increase in December. although, Details are better than the overall figure. Indeed, the fall is mainly due to a decline in purchases of transport equipment by households (-6.7% in the month compared to +4.8% in December). In the context of strict ecological bonus and penalty schemes, car sales are declining rapidly. All other categories of goods consumption rose in January in contrast to previous months.

A gradual recovery is expected in 2024

Finally, Although the first quarter will once again be synonymous with stability in the French economy, we are a bit more optimistic about the rest of the year. Gradual disinflation, rising wages, a still solid labor market and a recovery in consumer confidence should allow household consumption to pick up again during the year, supporting French growth. Investments may also recover in the second half of the year due to the fall in interest rates. On the other hand, budgetary policy is becoming more restrictive, with a 10 billion euro austerity plan announced that will weigh on public spending and investments despite the Olympic Games being held in the third quarter.

After the expected greater stability in the first quarter, we expect growth to accelerate during the year, allowing GDP to grow by an average of 0.5% throughout the year. For 2025, GDP growth is expected to be 1.3%.