This is an additional signal raising fears for the dynamics of economic activity in France. The morale of the bosses continues to darken: for the third consecutive month, the business climate has deteriorated in France, according to data published this Thursday by INSEE. It went from 102 in April to 100, ie its long-term level. But also its lowest level since April 2021.
This net cooling seems to spare almost no one. “The deterioration is visible in the service sector as well as in industry, retail or wholesale trade,” notes Charlotte de Montpellier, economist at ING.
In fact, the wholesale trade is experiencing a marked decline (from 98 in March to 94 in May), “penalized in particular by the decline in sales concerning past sales and deliveries received from abroad”, according to INSEE.
As for construction – for which professionals have been sounding the alarm for several weeks – its indicator dropped 3 points in one month (from 111 to 108), due to “the decline in the balances of opinion relating to production, workforce and order books. The drop is 2 points for services, but also for industry.
While the French economy – weighed down by heavy inflation – had already experienced a slack in the first quarter with growth of 0.2%, the rest looks even more difficult. “These data point to a sharp slowdown, which is not a surprise given the shocks – sharp rise in energy prices, rising interest rates, slowdown in the housing market – that have been building up and taking time to disseminate their effects”, judges Olivier Redoules, director of studies at Rexecode, a business institute close to employers.
“This slowdown is starting to have an impact on the labor market, which means that it is likely to last for several quarters,” adds Charlotte de Montpellier. In fact, the employment climate also experienced a soft spot in May, losing 3 points. Although it remains above its long-term average (at 106), it has reached its lowest level since September 2021.
These dark clouds are gathering in France as Germany entered a recession in the first quarter. Should we also fear a drop in activity on this side of the Rhine? “We must remain cautious for the months to come, but we expect a slight contraction in activity in the coming quarters,” says Olivier Redoules for Rexecode.
This is likely to significantly complicate the life of the government. Pressured by the expected opinion of Standard and Poor’s on the French note, Bercy seeks to plug the public accounts to meet its objective – not necessarily ambitious, after the -4.7% in 2022 – of a deficit at 4, 9% of GDP at the end of the year. To achieve this, the executive was counting on growth of 1% this year, an assumption that was already optimistic a few months ago and which currently seems to be receding.
It also seems that Bercy is preparing for a more difficult landing. To justify his recent decision to freeze 1% additional credits in his 2023 budget, Bruno Le Maire highlighted “a difficult environment”. “We must be lucid about the persistence of certain macroeconomic risks,” he explained. It is therefore better to have a safety cushion, especially since new expenditure – with a salary gesture for civil servants – is expected.