the Banque de France revises French growth downwards


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

More than a month after the start of the conflict, the indicators turn 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 GDP growth forecasts for the first quarter downwards, from 0.5% to 0.25% (-0, 25 point).

For their part, the Allianz economists have also downgraded 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 sharply downwards. Most of the reviews come from the countries most exposed to conflict. Global inflation has been revised upwards,” warned the director of macroeconomic research, Ana Boata, of the group specializing in insurance Allianz during a press briefing on Tuesday, April 12. For the month of April, the Banque de France is counting on generally favorable prospects but “they are surrounded by strong uncertainties”. Indeed, 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 down in March. In the survey conducted by the Banque de France, the production capacity utilization rate fell by one point last month, falling from 79% to 78%. Overall, most branches are holding up, but the automotive industry has suffered a sharper decline. In this branch, the utilization rate is only 62%, down two points compared to February and well below the industrial average. One of the main factors of this slowdown concerns supply difficulties. Nearly 90% of business leaders surveyed in this sector said they had faced this type of difficulty in March, compared to 79% in February.

While the pandemic had already shut down many sites in the territory and laid off several thousand factory workers and subcontractors, this war could deal a major blow to this already weakened industry. by the two long years of health crisis. Given the weight of the manufacturing industry in the tricolor economy, this decline in activity should not weigh too much on the GDP of 2022. On the other hand, this bodes very bad prospects for the “Made in France”.

Made in France, a very relative success abroad

Construction in the red

In construction, the indicators are also in the red. Even if the activity progresses slightly, according to the banking institution, the manufacturers are also confronted with serious difficulties of supply. In this sector, 56% of the bosses surveyed say they encountered obstacles in obtaining supplies in March, compared to 46% in February. This sudden increase of 10 points in one month illustrates the strong turbulence of an entire sector bearing the shocks since the first confinement in March 2020.

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

The tertiary resists

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

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

Creeping pessimism among French exporters

The war in Ukraine has considerably affected the morale of exporting companies in France. The proportion of respondents to the latest major Allianz survey unveiled on Tuesday April 12 anticipating an increase in turnover in 2022 plummeted from 94% to 78% after the invasion of Ukraine. “Unsurprisingly, there is more pessimism among exporters. The French and Italians are more pessimistic. The majority of respondents in 2021 hoped 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 turnover at export in 2022”, explain the authors of the study. The rebound of the global economy in 2021 and the reopening of economies with the acceleration of vaccination on a planetary scale had restored glimmers of hope in economic and financial circles.

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