France Economic Forecast

After flatlining in Q4, quarter-on-quarter GDP growth rebounded in Q1, expanding a mild 0.2%. Stronger growth in exports and declining imports meant foreign trade contributed positively to the reading. Meanwhile, despite increased inflation in the quarter, private spending growth was flat, improving from Q4’s contraction, likely aided by the unemployment rate falling to its lowest since 2008 in the quarter. That said, fixed investment contracted amid higher interest rates. Turning to Q2, economic activity growth should remain unchanged from Q1’s pace: In April–May, average consumer sentiment and average composite PMI improved from Q1, but average business confidence and the manufacturing PMI dipped in the same period, suggesting the stabilization in activity will mainly be services-driven.

Harmonized inflation rose to 6.9% in April (March: 6.7%) amid stronger transport and hospitality price pressures. In the rest of 2023, inflation should wane from current levels but at a slower rate than for neighbors: The phasing-out of government subsidies means high energy costs will linger. Commodity price swings and changes to subsidies are key factors to watch.