Slight decline in business climate
In France, business confidence fell slightly to 103 in March from 104 in February. Still above its long-term average, the indicator has been remarkably stable since June, oscillating between 102 and 104. The decline in March can be explained by economic leaders across sectors being slightly less optimistic about past and expected activity. Nevertheless, the order books in industry continue to grow, while in retail the order intentions of the retail trade are declining sharply.
The business climate confirms that activity in France at the beginning of the year is proving more resilient than was expected just a few months ago. Although slightly less optimistic about the future, companies remain fairly confident despite social tensions surrounding pension reform and limited activity in certain sectors. Past experience of social tensions in France shows that the economic impact is generally temporary and is fully offset by a rebound in activity in the months that follow. While the impact on growth should be close to 0% in 2023, it cannot be ruled out that social tensions will reduce growth by 0.1 to 0.2 percentage points in the first quarter compared to a no-tensions scenario before it kicked off in Q1 corresponding recovery in the second quarter.
The fact that economic sentiment is holding up is good news for economic growth at the start of the year, but does not mean that economic activity is very dynamic across the board. Industrial production fell in January and could remain weak even with a sustained improvement in supply chains. We expect slightly positive quarterly growth of around 0.1% for the first quarter.
What can we expect next?
The prospects for the French economy in the coming quarters remain subdued. The global economic slowdown is likely to weigh on exports and the industrial sector. The inflationary context will continue to weigh on private household consumption. In addition, the full impact of monetary tightening should materialize, weighing on household and corporate investment. In this respect, the effects of the recent market turbulence on the French economy are still quite uncertain. But even if the problems remain contained, this could lead to tighter credit conditions, which would weigh slightly negatively on economic activity in the coming quarters. Overall, we expect growth of 0.7% in 2023 and 2024 after growth of 2.6% in 2022.
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