The French economy is expected to grow by 0.6% in 2023, marking a sharp slowdown compared to the 2.5% increase of the previous year, penalized by prices which will remain high despite the expected decline in inflation, Insee said on Thursday. The rise in consumer prices, which weighs on households, should slow to 5% on average annually, against 5.2% in 2022, said the National Institute of Statistics when presenting for the first time its annual forecasts. In December, inflation is expected to stand at 4.4% year on year, compared to 6% in January 2023.
The Institute thus expects household consumption to fall by 0.2% (after 2.1% in 2022), which would explain the slowdown in activity, whereas this household consumption usually contributes to drive the French economy. Another weak link: household investment, in real estate in particular, just like that of companies, is likely to stall, under the effect of high interest rates after the aggressive monetary tightening carried out by the European Central Bank (ECB) to curb inflation.
There is “this inflation which weighs on domestic demand, and then the first consequences of monetary tightening on the real economy”, summed up Julien Pouget, head of the business cycle department of INSEE, during a conference in press. Because “inflation […] remains relatively high, even if it has started to ebb”, he added.
Consumer price inflation was 6% year on year in January and then began to slow in May to 5.1%. The decline is expected to continue until December, when inflation is expected to stand at 4.4%, thanks in particular to a sharp lull in energy prices, which had soared after the outbreak of the war. in Ukraine. Above all, the rise in food prices should experience a marked slowdown – without necessarily falling – thanks to the decline in the prices of agricultural raw materials and energy.
After 14.3% over one year in May, the increase should thus be almost halved in December (7.4%). As an annual average, over 2023, they would be 11.8% higher than the previous year. The prices of manufactured products should also slow down, unlike those of services due to wage increases. The sector should become the main component of inflation ahead of food at the end of the year.