Banque de France adjusts French growth downwards

“Our growth, at its peak today, will be inevitable” hit by the rise in the price of oil, gas and commodities, which will affect our purchasing power tomorrow. The price of refueling, the amount of heating bills, the cost of certain products are likely to rise further.” President of the Republic Emmanuel Macron had warned during a televised speech on March 2.

More than a month after the start of the conflict, the indicators are turning red one after the other. After two long years of pandemic, French companies are suffering again. In their latest economic report released on Tuesday, March 12, Banque de France economists revised their first-quarter GDP growth forecasts down from 0.5% to 0.25% (-0.25). points).

The Allianz economists, for their part, have also lowered their growth forecasts, but this time by 1 point for 2022, from 4% to 3% in their central scenario. If the war worsens, the French economy could go into recession at -2.3%. We had to lower our forecasts quite significantly. Most of the assessments come from the countries most exposed to conflict. Global inflation has been revised upwards.” warned the director of macroeconomic research, Ana Boata, of the insurance group Allianz during a press conference on Tuesday, April 12. For the month of April, the Banque de France is counting on a generally favorable outlook, but “they are surrounded by strong uncertainties”. Indeed, part of the development of activity will depend on the conflict in Ukraine and the supply problems exacerbated by the detentions in China.

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The industry in decline

Industrial engines slowed in March. In the Banque de France research, the capacity utilization rate fell by one point last month, from 79% to 78%. Overall, most industries are holding up, but the auto industry has seen a sharper decline. In this industry, the occupancy rate is only 62%, two points lower than in February and well below the industry average. One of the main factors of this delay is delivery difficulties. Nearly 90% of industry leaders surveyed said they had experienced these types of issues in March, compared to 79% in February.

While the pandemic had already shut down many operations in the area and laid off thousands of factory workers and subcontractors, the two long years of health crisis could see this war deal a major blow to this already weakened industry. Given the weight of the manufacturing sector in the tricolor economy, this decline in activity should not weigh too much on GDP in 2022. On the other hand, it promises very poor prospects for the “Made in France”.

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Build in red

In construction, the indicators are also in the red. Although activity is progressing slightly, manufacturers are also facing serious supply problems, according to the banking institution. In this sector, 56% of bosses surveyed said they encountered obstacles in getting supplies in March, compared to 46% in February. This sudden 10-point rise in one month illustrates the strong turbulence of an entire sector that has been carrying the shocks since the first lockdown in March 2020.

After peaking at a multi-year high at the end of 2021, order books have declined alarmingly since the start of the year. Again, the weight of construction in value added (6 points) should not shake the tricolor economy, but this conflict tends to weaken an entire sector.

The tertiary resistance

The tertiary sector as a whole has experienced higher activity levels than before the crisis since the beginning of 2021. In market services, activity continued to grow, particularly in wholesale and retail trade, transport, accommodation and catering. In these last three sectors, activity levels recorded in March have finally returned to pre-crisis levels.

It must be said that many establishments in these services have fallen victim to epidemic waves and repeated incarcerations before finding more favorable conditions. In financial services and real estate, the indicator has remained stable since January, well above pre-pandemic levels. Taking into account the weight of services in the French economy (nearly 80% of GDP), French growth in this first quarter was partially spared the tremors of the war.

Creeping pessimism among French exporters

The war in Ukraine has significantly affected the morale of exporting companies in France. The share of respondents to the latest major Allianz survey unveiled on Tuesday, April 12, anticipating a revenue increase in 2022, plummeted from 94% to 78% after the invasion of Ukraine. “It is not surprising that there is more pessimism among exporters. The French and Italians are more pessimistic. The majority of respondents hoped to increase their export turnover in 2021”, says Ana Boata.

“In Italy and France, where companies were the most optimistic before the war, 29% (+26 pts) and 23% (+20 pts) respectively of exporters now expect a decline in their export turnover in 2022,” explain the authors of the study. The recovery of the global economy in 2021 and the reopening of economies with the acceleration of vaccination on a planetary scale had restored hope in economic and financial circles.

The outbreak of war at the gates of the European Union completely changed the situation. The rise in the cost of energy and raw materials and the geopolitical instability resulting from the conflict are disrupting global trade as a whole. If inflation is more limited in France than in most other European countries, the stalemate in the conflict could send the economy into a hugely turbulent zone. This should seriously complicate the task of the next government after April 24.

Ukraine’s GDP will collapse (-45%), but the World Bank sees an even bleaker scenario