French households are ‘only just beginning to see the benefits’ of lower inflation, with household consumption ‘disappointing’ since the start of the year, statistics body Insee has said.
While the year-on-year increase in prices in France stood at just 1.2%, a far cry from the high inflationary periods experienced a year ago, consumption remains muted.
There has been some ‘solid’ improvement in purchasing power (+1.8% expected in 2024, following +0.9% in 2023), Insee noted, however the legislative elections held in France this summer disrupted the business climate and consumer confidence.
Business sentiment
Business sentiment improved after a summer dip, but sectors related to investment products remain cautious, contributing to a decline in corporate spending on equipment.
Employment has stagnated, and with only modest job creation expected, the unemployment rate is projected to rise slightly to 7.5% by year-end.
Olympic boost
At the same time, the Olympic and Paralympic Games in Paris boosted activity in the short term during the summer, ‘albeit a little less than originally expected, due to crowding-out effects in recreational services and in accommodation and catering,’ Insee noted.
All in all, business activity is expected to increase by 0.4% in Q3 then stabilise by the end of the year, it added.
‘Several uncertainties’
‘There are several uncertainties surrounding this forecast,’ the statistics body added. ‘Although the price of oil is declining, it remains very volatile, affected by weak demand and geopolitical tensions, as can be seen from its recent rise.
‘In France, while political uncertainty has receded somewhat, details of the budgetary measures are not yet fully known. When they are announced, this could change the behaviour of economic stakeholders, especially businesses. On the household side, the mid-2024 savings ratio was three points above its 2019 level: if it were to come down, this would represent a considerable support factor, whereas a more marked wait-and-see attitude would weaken the expected growth.’ Read more here.
