REGIONAL REPORT
Digital monitoring of energy use at the Renault Group plant in Le Mans , France . Between 2021 and mid-2022 , Renault Group succeeded in cutting the energy used by its industrial and tertiary sites in France by nearly 10 %.
“ As regards the consequences of the energy crisis , 24 % of companies reported that their activity over the past month had been affected , of which 6 % significantly . For the next three months , 35 % of firms expect this to have an impact ( weak or strong ) on their activity ( 42 % in industry ). In terms of the impact on their margins over the next three months , two-thirds of companies in the construction and manufacturing sectors reported concerns , and nearly half of companies in market services ,” added the Banque de France .
Based on the survey results , combined with other indicators , the bank expected GDP to grow by around 0.1 % in the fourth quarter of 2022 compared with the previous quarter , in line with its three-year projection for the French economy .
Business leaders were also asked about their recruitment difficulties . These difficulties remained high at 53 % across the board . The rate of increase in the prices of raw materials and finished products also remained unchanged . More specifically , 21 % of business leaders in the manufacturing industry reported that they had raised their selling prices in November 2022 . This proportion stood at 47 % in construction and 17 % in market services .
Economic forecasts
The European Commission ’ s latest macroeconomic forecast for France expected economic activity to slow down ‘ significantly ’ in the second half of 2022 and in 2023 amid important supply disruptions and higher inflation , triggered by the energy crisis .
“ The rise in inflation is set to be sizeable and persistent ( 5.8 %, 4.4 % and 2.2 % in 2022 , 2023 and 2024 ), although largely attenuated by the measures adopted to mitigate the impact of high energy prices . The general government deficit is forecast to fall to 5.0 % of GDP in 2022 and to reach 5.3 % in 2023 , and 5.1 % in 2024 . Public debt is set to decline to some 110 % of GDP by 2024 ,” it outlined .
The International Monetary Fund issued a concluding statement of the 2022 Article IV mission to France on 21 November 2022 .
“ After a strong economic recovery from the COVID-19 pandemic , France was hit by an energy shock driven by Russia ’ s invasion of Ukraine . While it has been less affected than most EU countries due to a lower reliance on Russian gas and a strong ( but costly ) policy response , France still faces high inflation and a sharp slowdown in economic activity ,” said the IMF .
France ’ s construction industry is set to expand by 3.3 % in real terms in 2022 and record an annual average growth rate of 2 % over the remainder of the forecast period ( 2023-26
In 2023 , it recommended that France begin a multi-year process of expenditure-based fiscal consolidation to rebuild policy buffers and put the public debt ratio on a firmly declining path . Initially , it said , this should include better focusing fiscal support to counteract the energy shock , and in later years be supported by structural expenditure reforms ( such as in pensions ).
“ Continued efforts to boost worker skills and address inefficiencies in the educational system will be important , as will support for vulnerable populations . The energy price shock presents opportunities to accelerate the green transition . The financial sector has performed well , but risks are rising and continued vigilance is warranted ,” it added .
It expects Russia ’ s invasion of Ukraine to continue to weigh on French growth into 2023 . Inflationary effects , coupled with weakened confidence , will dampen household real incomes and consumption . Higher interest rates and lower confidence will probably slow investment growth . IMF staff now forecast GDP growth of around 2½ per cent for 2022 and around ¾ per cent for 2023 , reflecting both lower domestic and external demand .
“ While growth should recover somewhat thereafter , it will eventually converge towards the potential rate of 1.3 per cent , with scarring from the pandemic and the energy shock leaving output some two percentage points below the pre-pandemic trend ,” highlighted the IMF . Further efforts to reduce labour market frictions , increase labour supply and improve worker training will help to raise potential growth .
“ The French labour market has performed very well in recent years , with historically high employment and labour force participation and historically low unemployment . Nevertheless , participation rates remain below many peer countries and there are still challenges , particularly among low-skilled and young workers . Policies should be aimed at alleviating skills shortages , such as combining job-search assistance schemes with training programmes and improving the quality of training ,” added the IMF .
Construction and manufacturing
According to new analysis from Research and Markets . com , France ’ s construction industry is set to expand by 3.3 % in real terms in 2022 and record an annual average growth rate of 2 % over the remainder of the
Paris at night ( Leonard Cotte , Unsplash ).
Further efforts to reduce labour market frictions , increase labour supply and improve worker training will help to raise potential growth