French Economic Growth Seen Modest as Political Turmoil Weighs
(Bloomberg) -- France’s economic growth will be modest on average in the second half of the year as consumer demand picks up only slightly and businesses rattled by political uncertainty continue to hold back on investment, Insee said.
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The Summer Olympics in Paris provided a temporary boost, as previously predicted, but the statistics agency trimmed its forecast for overall third-quarter expansion to 0.4% from 0.5%. It still expects a 0.1% contraction in the final three months of the year and 1.1% annual growth for 2024.
Political upheaval and uncertainty over a future government after snap legislative elections in France have undermined business confidence in the euro area’s second-largest economy. Newly appointed Prime Minister Michel Barnier has indicated there won’t be a huge shift in policy, though the European Union’s former Brexit negotiator has yet to select ministers or give details of how he will address budget difficulties.
“The political situation obviously creates uncertainty, as much due to the unknown organization of the budget, as due to the reaction of economic agents to these decisions,” Insee economist Dorian Roucher said. “Households seem inclined to consume some of their real income gains while keeping high savings, and a ‘wait-and-see’ attitude dominates business.”
Insee said on Monday that foreign trade and public spending were the main drivers of economic growth in the first half of the year, while domestic demand was otherwise at a standstill. Business investment contracted for three consecutive quarters, and households remained hesitant despite the easing of inflation, it said.
Insee remains cautious on economic growth, yet it’s more confident on disinflation. It expects the national index — which differs slightly from the European measure watched by the European Central Bank — to remain under 2% for the rest of 2024 after passing below that threshold in August for the first time in three years.
Price increases in services should also slow, helping to ease underlying pressures, Insee said.
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