France: Business climate indicates a resilient economy

In France, the business climate decreased slightly in March, to 103 compared to 104 in February. The indicator is still above its long-term average and has been remarkably stable since June, fluctuating between 102 and 104. The decrease in March can be explained by the fact that in all sectors business leaders are slightly less optimistic about past activity and expected activity. Nevertheless, in industry, order books continue to grow, while in trade, retail order intentions are down sharply.

The business climate confirms that activity in France at the beginning of the year is proving to be more resilient than might have been anticipated a few months ago. Although they are slightly less optimistic for the future, companies remain fairly confident, despite the social tensions surrounding the pension reform and limiting activity in certain sectors. Previous experiences of social tensions in France show that the economic impact is generally temporary and fully compensated by a rebound in activity in the following months. While the impact on growth in 2023 should be close to 0%, it cannot be ruled out that social tensions reduce growth in the first quarter by 0.1 to 0.2 percentage points compared to a scenario without tension, before an equivalent rebound in the second quarter.

The fact that economic sentiment is holding up is good news for economic growth at the beginning of the year, but it does not mean that economic activity is very dynamic in all sectors. Industrial production fell in January and could continue to be weak, even with a sustained improvement in supply chains. We expect slightly positive quarterly growth in the first quarter, of about 0.1%.

The outlook for the French economy over the next few quarters remains subdued. The global economic slowdown is likely to weigh on exports and the industrial sector. The inflationary context will continue to weigh on household consumption. In addition, the full impact of monetary policy tightening is likely to start to be felt, weighing on household and business investment. In this respect, the impact of recent market turbulence on the French economy is still rather uncertain. But even if the problems remain contained, this could lead to a tightening of credit conditions, which would have a slightly negative impact on economic activity in the coming quarters. All in all, we expect growth of 0.7% in 2023 and 2024, following growth of 2.6% in 2022.