INSEE has just published its first estimation of the French growth during the 3rd quarter (0.4%), which would allow to hope, for the full year, a figure slightly above 1%. But the satisfaction expressed by the commentators is not justified. Once removed the positive but temporary impact of the Olympic Games, household consumption has stagnated. The enterprises investment and the new homes construction are significantly reducing. The slightly positive contribution of the foreign trade comes only from a reduction of the energy balance. France has even a trade deficit for agricultural goods and the situation is not improving significantly regarding industrial goods.
Germany is going through a recession due to its past dependance to Russian natural gas and to the high level of its exports of cars with thermal engines, especially in China, which are now threatened. It will probably know a second consecutive year of recession. But it is not a reason to be satisfied by the results of France which has never spent so much money to support activity with such poor achievements. The government must reduce in 2025 the public deficits which will weight even more on an already weak growth.
First, to talk about growth when this one is hardly above 1%, as it is the case as an average since 2019, is excessive. That comes more from communication than from an assessment of the real situation of the economy. The analysis of the activity components is revealing. We see a significant diminution of the enterprises investments (-1.4% year-on-year) especially strong regarding the manufactured goods (-4.4% year-on-year), and of the construction sector. Home building is going through a major crisis with housing starts during the last twelve months falling by 29%.
Household consumption doesn’t compensate these bad results. The 0.5% increase during the 3rd quarter comes from the sale of Olympic Games tickets and is a temporary phenomenon. The stagnation observed during the first six months of the year so could come back during the 4th quarter. It first results from the stagnation and even, from a diminution for a large share of the population, of the purchasing power. The net average salary has been reduced in 2022 by 1% and by 0.8% in 2023. The strong diminution of the inflation in 2024 has not allowed to generate a significant rebound to compensate these losses. The second reason is structural. The population ageing will exercise a growing pressure on behaviors: less children means less expenditures and more people reaching a very old age, there too, means less travels, and a low appetite for a large category of purchases like dresses, household appliances or cars.
At last, the reduction of the trade deficit is exclusively caused by the fossil fuels prices fall after the rise provoked by the invasion of Ukraine by Russia and by the progressive restarting of the nuclear production. That has contributed to the GDP increase during the 3rd quarter by 0.1%. The deficit in goods excluding energy remains heavy (40 billion euro in CAF/FOB figures during the last 12 months i.e. twice more than in 2014). To the contrary of the official speeches, the expected competitiveness recovery did not occur and the re-industrialization, which constituted a government priority, is far from being significant.
Unemployment still hurts three million persons and if we have noted a reduction of the jobless rate, it is due to the denominator: the share of the working age population has increased, which has mechanically made the ratio falling. The huge amounts of money engaged by the State in order to reduce the enterprises social and fiscal charges (70 billion per year as an average) have not so allowed to reach the adopted objectives regarding investment, employment and growth as are showing without any ambiguity the figures observed since the beginning of the year. But they have by large contributed to the public deficits and to the increase of the indebtedness of the State, of the local authorities and of the Social Security general regime.
The person who is the most important in an enterprise is the client, was saying François Michelin. This reflection also applies to the economic policy. It is useless to reduce the enterprises charges if it hurts their customers; the weakness of the local demand has incited many enterprises to invest outside the country and/or to better pay their shareholders or their executives. The trend, these last years, of the stock market index well shows the lack of correlation between the recovery of the situation of the enterprises and the growth of the economy.
The action of the European Central Bank has also weighed on growth. The Frankfurt institution has strongly increased its rates to fight against inflation since the middle of 2022, in conformity with its mandate to have prices increase under but near 2%. But that inflation the euro zone has known did not come from internal factors as an unbalance between a too strong demand which was necessary to slow and an insufficient supply, but from external and independent factors (fossil fuels prices rise and breaks of the supply chains due to geopolitical tensions). When theses ones have if not stopped but at least became less important, prices have followed and inflation came back under 2% in the euro zone. It was evaluated in France in October at 1.5% when the 10 years State bond interest rate had reached 3.15% at the end of that month.
These monetary tightening have constituted one of the main causes of the near stagnation and even of the recession Germany has endured, inside the euro zone. We came to the paradox according to which we have recovered largely positive real interest rates at a moment when it was necessary to support activity and to reestablish the public accounts. France has been particularly hurt because that has increased its budget deficit through the rise of the debt charge. The joint between the reduction of the purchasing power and the increase of the real rates has impeached many households to have access to proprietorship which has generated, at the worst time, the fall of the building of new homes with its consequences on employment and on growth.
Households have reacted through an increase of their financial saving which has reached a record during the 2nd quarter (the last known figure) with 18% of their gross available revenue. The trend has been confirmed with, each month, a positive collection of life insurance. The amount of these assets was, at the end of September, 1997 billion euro and everything allows to think that the 2000 billion level will be soon overpassed. The furnished explanation, the worry regarding the future, is insufficient. The resources are oriented toward financial assets because the acquisition of a home is frequently, now, not any more possible. The inequalities increase plays also a role. For many households, the revenues are by large superior to their needs. The surplus is then oriented toward financial saving and the trend has been amplified by the increase of the revenues coming from the interest rates rise.
France economic results so are insufficient and do not justify the shown satisfaction of the political leaders. The European Central Bank also does not contribute to the improvement of the situation at a time when the restoration of the public accounts must constitute a priority.