French activity risks virtually stalling for the rest of the year

On Thursday, the first activity indices were published, taking into account the war in Ukraine. The result for France is rather encouraging, but be careful not to get too excited by misinterpreting the numbers.

Thus, the business climate measured by INSEE among business leaders surveyed between February 25 (the day after the start of the Russian offensive) and March 21, 2022 fell six points in March to 107, while remaining well above its own. long-term forecast. average term. The deterioration is strong in the industry, where entrepreneurs expect a sharp deterioration in both personal and general prospects. The index is back to its lowest level since the end of 2020. Logic: The industry is particularly affected by rising energy and raw material prices, as well as supply constraints.

The indicator is also falling in wholesale and retail trade. Conversely, in the service sector, the business climate is deteriorating worse, while in construction it is stable. For its part, the employment climate is stabilizing at a high level as the expected decline in the industrial workforce is offset by recent developments in retail.

The results are similar for another index released Thursday, PMI measured by S&P purchasing managers (the ratings agency bought IHS Markit last year, the research bureau known for these PMI indexes). In France, as in Europe, there is a decline in industry, but resistance in the service sector due to the relaxation of sanitary restrictions.

State aid. Another encouraging factor: on Wednesday, the European Commission adopted a new framework for state assistance to companies affected by the economic consequences of the war in Ukraine. “Member States can distribute the aid they deem necessary, without a spending ceiling and without a deadline, to help those sectors on the ground that need it most,” said Margrethe Vestager, vice president of the commission in charge of competition. For some, agriculture, for others, fishing. »

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The fact remains that a great deal of uncertainty looms over the coming months: the magnitude of the shock of confidence that the Russian-Ukrainian crisis will cause for economic agents – households and businesses – and, consequently, trends in consumption and investment. Joe Hayes, senior economist at S&P, recently observed that “new orders were placed earlier than expected in anticipation of future price increases. While this may temporarily support demand, it suggests that there will come a time when customers will no longer accept higher prices.” Thus, “temporary boom [de la demande] a downturn in activity could follow in the short term,” explains Charlotte de Montpellier, senior economist at ING, in a note.

“The impact of the war on consumer confidence is not yet known, as March data will be released at the end of the month, but INSEE has already given a partial assessment of the consumer confidence indicator based on a sub-sample, and a sharp drop is forecast. which is to be expected, mainly after the sharp deterioration in the prospects for the general standard of living in France,” she continues.

Acquired. Finally, even if growth forecasts remain good, they owe much to the gains made at the end of last year. Analyst consensus for France is 3.3% in 2022, twice the potential estimated by the European Commission at 1.6%, reminds Oddo BHF economist Bruno Cavalier. However, the growth overhang for 2022 was already 2.4 points at the end of December 2021 and will be 2.7 points at the end of March. “In other words, an average growth of 3.3% signals that the economy will fall below its potential until the end of the year,” the expert emphasizes. ING Bank, which forecasts growth of only 2.7% in 2022, thus expects “a virtual stagnation in activity during the year.”

In developing economies, the impact of the war in Ukraine is much stronger. The United Nations Conference on Trade and Development (UNCTAD) fears that “the combination of weakening global demand, lack of international policy coordination and high levels of debt due to the pandemic is generating waves of financial shock, pushing some developing countries into a downward spiral of insolvency, recession and faltering development “. The organization revised its global growth forecast for this year from 3.5% to 2.5% on Thursday.

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