Growth in half, inflation at the highest… an explosive cocktail for Macron’s new five-year term

Seulement quelques jours après le second tour de la présidentielle, Emmanuel Macron est confronté à de mauvais chiffres économiques.


The war in Ukraine continues to wreak havoc on businesses in Europe. After a strong recovery in 2021 to 7%, French growth remained stagnant in the first quarter of 2022. According to INSEE data released on Friday 29 April, GDP remained stagnant between January and March after + 0.8% in the last quarter of 2021 and + 3% in the third quarter of 2021. The Institute of Statistics has significantly revised its quarterly forecasts compared to February (-0.3 points).

“GDP stopped in the first quarter of 2022 (0.0% on a quarterly basis). It bears the imprint of the 2 external shocks (Covid with Omicron in January and then the war in Ukraine which boosted inflation) household consumption “. reacted the head of the business cycle department at Insee Julien Pouget on Twitter.

The outbreak of war at the gates of the European Union has significantly darkened the economic outlook. The International Monetary Fund (IMF) now expects GDP growth of 2.9% in 2022 compared to 3.5% in January.

As a result, France would already be, according to several economists, in a “stagnant” risk scenario (high inflation and sluggish growth). On the contrary, others believe that at this stage, given the development forecast for the year 2022 (2.4% according to INSEE), this hypothesis of stagnation is not has not yet been confirmed.

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The dangerous equation of the next amending budget

While Emanuel Macron will have to detail his next government next week, these bad results could well complicate the work of the new executive branch. “It simply came to our notice then annual growth of 4% in 2022 recorded by the government last fall for His draft budget can no longer stand it. It will be reduced as part of the collective budget discussed this summer to take account of the new circumstances. “ explained Oddo BHF economist Bruno Cavalier in a recent note.

Following the € 7 billion sustainability plan announced in the spring, the government will have to introduce an amending financial bill (PLFR) this summer to secure funding for new measures. Indeed, Bercy teams are already working on new reinforcements for large cylinders and an extension of the price shield in particular. The last weeks of the presidential campaign reminded us that purchasing power was a burning issue in the eyes of the French. In addition, the results of last Sunday’s election showed that France was deeply divided with the far right at the top and abstention at the top. As the parliamentary elections scheduled for next June approach, Emanuel Macron must definitely avoid any social fire if he wants to maintain the majority in the National Assembly.

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Inflation at 4.8% in April, a record since the 1980s

The consumer price index rose 4.8% in April from 4.5% in March, according to another provisional data from INSEE. Energy continues to raise the price fever in general, but to a lesser extent than in the first months of the year. “The main contribution is far from energy, but it is decreasing a little bit. Instead, the contributions of food, industrial goods and services are increasing.” adds Julien Pouze.

While 2021 was characterized mainly by rising energy prices following the spectacular growth spurt in 2020, the situation has changed completely. ““The fact that inflation in services, food and processed goods is all upwards and above the ECB’s target shows the growing inflationary pressures.” explains in a note the economist of ING Charlotte of Montpellier.

Driven by supply-demand friction in 2021 as part of the recovery, inflation continued to accelerate sharply in the first quarter as part of the war in Ukraine. The invasion of Russia caused a great shock to the energy markets of the Old Continent, forcing European states to find solutions without Russian gas and oil.

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Sluggish domestic demand

Domestic demand weighed on activity data between January and March. “In contrast to the United States, where GDP decline in the first quarter is linked to weak external demand, domestic demand is declining in France, contributing -0.6 points to GDP change.” adds Charlotte from Montpellier. Household consumption, the traditional driver of French growth, fell to -1.3% in the first quarter after 0.6%.

The increase in Omicron virus infection at the end of 2021 during the Christmas holidays and in the first weeks of 2022 significantly burdened household morale. On the investment side, the data show a slow development to 0.2% compared to 0.3% in the fourth quarter. The dynamics are driven mainly by companies and public administrations. On the other hand, household investment expenditures decreased by -1.1%.

Foreign trade contributes positively to growth

In the first quarter, foreign trade contributed positively to growth by about 0.1 points. “Foreign trade is also continuing to grow, but at a slower pace than at the end of 2021, especially thanks to the recovery in transport equipment exports due to the delivery of a cruise ship. “Exports (+ 1.5% quarterly) are growing faster than imports (+ 1.1%).” emphasizes Charlotte of Montpellier.

After two years of recession, the French exporters are recovering a little, but this recovery could be short-lived. In addition to the catastrophic consequences of the war in Ukraine, China’s Covid Zero policy and the massive lockdowns imposed by Beijing are disrupting supply chains around the world. In France, several manufacturers have already stated that they had to slow down production rates due to these restrictions. Others chose to limit the margins.

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The number of job seekers decreased in the first quarter

Despite the sluggish growth, the number of job seekers decreased in the first quarter. According to the latest figures from the Statistics Office of the Ministry of Labor (Dares), the number of jobseekers in category A decreased by 5.3% (-164,000) in mainland France compared to the last quarter of 2021 and by 16% in a year. At the same time, the number of jobseekers in reduced activity continued to increase (category B) or stabilize (category C). In total, the number of job seekers in categories A, B, C decreased by 2.8% this quarter (-150,000) and by 8.4% over a period of one year “. underline the statisticians in a press release.

Unemployment continues to fall thanks to the resumption of activity and support measures

Unpleasant development prospects

These worse-than-expected growth figures for the first quarter are likely to weigh on the following quarters. “The sharp rise in inflation, which is now spreading to the wider economy, is burdening household incomes. To this is added the pessimism of households, which is reflected in the sharp drop in consumer confidence in March “It will recover in April. These two elements are likely to reduce household demand even more strongly.” says Charlotte from Montpellier.

This reduced demand will have to be borne by the order books of companies that have already been hit by a two-year pandemic. “French economic growth is therefore likely to remain weak.” Charlotte table from Montpellier. “While none of these factors are sufficient to lead the French economy into complete recession, the combination of all these elements simultaneously drastically increases the risks of one or two quarters of negative growth for the rest of the crisis.”, he adds. Meanwhile, the next executive will have to deal with this laxity in the coming weeks.

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