Banque de France revises down French growth

“Our growth, today at its highest point, will inevitably be affected by the rise in the price of oil, gas and raw materials, and this will have consequences tomorrow for our purchasing power. The price of refueling, the amount of the heating bill, the cost of certain products, are likely to increase even more,” The President of the Republic, Emmanuel Macron, had warned on March 2 during a televised speech.

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

For their part, Allianz economists have also lowered their growth projections, but this time for 2022 by 1 point, from 4% to 3% in their central scenario. If the war worsens, the French economy could fall into recession at -2.3%. We had to revise our forecasts quite downwards. Most reviews come from the countries most exposed to conflict. Global inflation has been revised upwards,” warned the director of macroeconomic studies, Ana Boata, of the specialized insurance group Allianz during a press conference on Tuesday, April 12. For the month of April, the Banque de France has generally favorable prospects, but “They are surrounded by strong uncertainties.” Precisely, part of the development of the activity will depend on the conflict in Ukraine and the supply difficulties amplified by the confinements in China.

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The industry in decline

Industry engines slowed in March. In the survey conducted by the Banque de France, the production capacity utilization rate fell one point last month, from 79% to 78%. In general, most of the branches remain, but the automotive industry has suffered a more pronounced fall. In this branch, the utilization rate is only 62%, two points less than in February and well below the industrial average. One of the main factors behind this slowdown is supply difficulties. Almost 90% of business leaders surveyed in this sector said they faced this type of difficulty in March, compared to 79% in February.

Although the pandemic had already closed many sites in the territory and laid off several thousand factory workers and subcontractors, this war could deal a severe blow to this industry already weakened by the two long years of health crisis. Given the weight of the manufacturing industry in the tricolor economy, this drop in activity should not weigh too heavily on GDP in 2022. On the other hand, this augurs very poor prospects for “Made in France”.

Made in France, a very relative success abroad

construction in red

Under construction, the indicators are also in the red. Although activity is slightly advancing, according to the banking institution, manufacturers are also facing serious supply difficulties. In this sector, 56% of the bosses consulted said they had encountered obstacles to stocking up in March, compared to 46% in February. This sudden increase of 10 points in a month illustrates the strong turbulence of an entire sector that has endured shocks since the first lockdown in March 2020.

After peaking at the end of 2021, the highest in years, order books have shown a worrying decline since the beginning of the year. Here again, the weight of construction in added value (6 points) should not shake the tricolor economy, but this conflict tends to weaken an entire sector.

The tertiary resists

The tertiary sector as a whole has shown activity levels higher than those prior to the crisis since the beginning of 2021. In market services, activity has continued to advance, especially in wholesale and retail trade, transport, accommodation and restaurants . In these last three sectors, the level of activity recorded in March has finally returned to the pre-crisis level.

It must be said that many establishments of these services have suffered the full blow of the epidemic waves and repeated confinements before finding more favorable conditions. As for financial services and real estate, the indicator has been stable since January, well above its pre-pandemic level. Taking into account the weight of services in the French economy (almost 80% of GDP), French growth was partially spared from the tremors of the war during this first quarter.

Growing pessimism among French exporters

The war in Ukraine has considerably affected the morale of exporting companies in France. The proportion of respondents in the latest major Allianz survey revealed on Tuesday, April 12, who anticipated an increase in turnover in 2022 plummeted from 94% to 78% after the invasion of Ukraine. “As expected, there is more pessimism among exporters. The French and Italians are more pessimistic. The majority of those surveyed in 2021 expected to increase their export turnover”, 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 drop in their export turnover in 2022 ”, explain the authors of the study. The rebound of the world economy in 2021 and the reopening of the economies with the acceleration of vaccination on a planetary scale had returned lights of hope in economic and financial circles.

The outbreak of war at the gates of the European Union completely changed the situation. The rising cost of energy and raw materials and the geopolitical instability linked to the conflict are disrupting all world trade. If inflation in France is more contained than in most other European countries, the stalemate in the conflict could push the economy into a wide area of ​​turmoil. 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