Over several quarters, global activity has slowed and inflation has become widespread, leading the main central banks to tighten their monetary policies, while most governments have taken budgetary measures aimed at limiting price increases or supporting income. World commodity and energy prices have fallen overall in H2 2022 but they remain high, reflecting both the decline in growth prospects on the one hand and the persistence of supply tensions on the other.

Not all countries are similarly exposed to these headwinds. The Chinese economy is the only one where recent fluctuations were directly linked to the waves of the Covid-19 epidemic. It is expected to bounce back moderately over the next few quarters, subject to the effective easing of health restrictions. In the United States, inflation has fallen back for several months, but its core component remains high, linked to the dynamism of the labour market. After standing firm in H2 2022, activity in the US could weaken in H1 2023. Meanwhile, despite a significant rebound in October, the UK economy is expected to remain in recession, against a background of very high inflation aggravated by supply constraints due to Brexit.

Within the Eurozone, despite fiscal support measures and residual catch-up effects after the health crisis, activity could fall back during the winter, a little more strongly in Germany and Italy than in France, depending, among other things, on the degree of sectoral exposure of each country to the European energy crisis. Inflation differentials between the main countries remain considerable: the year-on-year variation in consumer prices is much higher in Germany and Italy than in France and now even than Spain. A large proportion of these differences continue to stem from different methods and schedules for fixing (and limiting) energy prices. By mid-2023, year-on-year prices could start to decline in most countries, partly and automatically due to strong “base effects”, though price levels look set to continue to increase.

Despite a tendency to stabilise, supply difficulties remain considerable in France according to the responses received from business leaders in the business tendency surveys. These constraints do not affect the different branches of activity in the same way. Industry in particular is most exposed to the current energy price shock. Within the manufacturing sector some branches use a lot of energy in their production processes (chemicals, paper-cardboard, metallurgy, manufacture of other non-metallic mineral products). In addition, at the level of each individual business, exposure to the shock depends not only on energy consumption but also on their types of supply chain contract.

In order to assess the consequences for companies of the rise in electricity and gas prices, a specific question was added to our business tendency surveys. More than half of the French industrial companies questioned in November 2022 appeared to be particularly exposed to the electricity price rise, because they depend either on a fixed-price contract over a contractual period that expires at the end of 2022 or during 2023, or on a contract indexed directly to the market price. The increases in unit price invoiced (before any use of help measures) that industrial companies are anticipating for 2023 are very varied, averaging over 100%, after +75% estimated for 2022.

In this context, the majority of manufacturing companies said they intend to pass on at least part of the energy price rise in their own selling prices and a significant proportion of them anticipate reducing their margins. The proportion of companies saying they intend to reduce their production is lower: responses to the survey suggest an aggregate drop in manufacturing output of around 1½% linked directly with the rise in energy prices. In addition, more than half of companies plan to make investments to permanently reduce their energy costs.

Recent trends in margin rates are also markedly sectoral in nature: recent gains are focused precisely on the energy and transport services branches, linked to the very sharp rise in sea freight rates coming out of the health crisis, and the increase in the electricity sale price, itself driven by gas prices. The introduction of a tariff shield enabled the electricity sale price to follow its usual determinants without this price rise being passed on in full to final and intermediate consumer electricity prices. In the opposite direction, however, the rise in the energy companies’ sale prices was limited by extending the ARENH mechanism and by the State mechanism to recover the so-called infra-marginal rents.

In France, the composite business climate indicator was eroded in spring and summer before stabilising this autumn slightly above its long-term average, although the situation is still not promising in the most energy-intensive industrial branches. The calculation of this indicator is mainly based on the answers to the qualitative questions in the business tendency surveys on expected change in activity. Any drop in activity expected by companies are therefore all considered in the same way, regardless of their magnitude: this may help to minimise the impact on the overall business climate of major reductions in activity in some companies.

In fact, the activity statistics available for October show a decline, both in terms of industrial production and household consumption of goods. This decline goes beyond the seemingly one-off effects of strikes in refineries and the lack of availability of the nuclear power plants, which hampers electricity production. It seems to be confirmed by some high-frequency data available for November (electricity consumption by major industrial companies connected directly to the RTE, aggregate amounts of bank card transactions).

French GDP could therefore falter slightly in Q4 2022 (-0.2% forecast, after +0.2 in Q3), with the effect of declining industrial output and sluggish activity in services. Household consumption is likely to contract substantially, mainly due to a strong decline in energy consumption (linked to the mild weather conditions in October-November but also to austerity behaviour, partly spontaneous, partly linked to price rises) and a downturn in spending on accommodation-catering. After a strong catch-up this summer in vehicle purchases, investment is expected to remain at a standstill. Foreign trade is likely to support the trend in activity at the end of the year, with in particular some major aeronautical and naval deliveries.

The start of 2023 is expected to be marked by rising electricity and gas prices, for businesses and households alike. Activity should nevertheless rebound very slightly in Q1 (+0.1% forecast), as a result of the expected rebound in coke production and refining after strikes in the autumn, and the plan to restart several nuclear reactors that are currently undergoing maintenance. The rebound is expected to be stronger in Q2 (+0.3% forecast) with an acceleration of activity in services.

All in all, annual growth looks set to reach +2.5% in 2022 (after +6.8% in 2021). For 2023, the mid-year GDP growth overhang (i.e. the growth that would have been obtained on the assumption that activity in Q3 and Q4 remains at the same level as that forecast for Q2) is expected to be positive but modest (+0.4%). For the other main Eurozone countries, this mid-year carry-over for 2023 is likely to range from -0.2% for Germany to +1.1% for Spain, via +0.3% for Italy.

This forecast scenario assumes no power cuts this winter, and a gradual rebound in the availability of the French nuclear power plants. Alongside other uncertainties that may affect economic activity upwards or downwards (geopolitical developments in eastern Europe, health situation in China, effectiveness of budget support measures, impact of ongoing monetary tightening, etc.), there is also a technical uncertainty linked to the restarting of the French nuclear reactors: the fact they have not been available would appear to have taken about 0.4 points off GDP in 2022.

Since mid-2021, inflation has risen sharply and spread to a large number of goods and services. This extension does not bode well for a decline in the very short term, even though we observe a relative easing of the price of energy and some commodities and a slowdown in some production prices. Expectations of change in sale prices do indeed remain high, according to the business tendency surveys.

The trend in inflation over the next few months will depend, among other things, on developments in measures to limit energy prices and fluctuations in oil prices. The planned increase in regulated gas and electricity prices, and the end of the reduction at the pump, are likely to contribute to increasing headline inflation, which is expected to reach +7% year-on-year at the beginning of January 2023. The year-on-year variation in food prices looks set to reach about 13%. From the spring, headline inflation could nevertheless fall back by the “base effect” (+5.5% forecast in June), with prices continuing to increase month by month but less sharply than a year earlier. Core inflation is expected to remain above 5%, particularly given the continued rise in input prices.

In this context, wages are expected to be fairly dynamic in nominal terms, affected by several things, including increases in the minimum wage, wage negotiations and the value sharing bonus, but it is likely that real wages will continue to decline. The purchasing power of gross disposable income is likely to be sustained until the end of 2022 (+0.7% forecast per consumption unit, after +0.8% in the previous quarter), benefitting from several measures (abolition of the television and radio licence fee, the continuing reduction in the in the housing tax, the exceptional energy cheque). It is expected to slip back in H1 2023 (-1.2% forecast in Q1, -0.5% in Q2) because of the buoyancy of prices and the expected slowdown in employment.

Since 2021, quarter after quarter, employment has shown surprising strength, more sustained than that of activity. The good performance of the employment climate calculated from the business tendency surveys also reflects this vigour. As a result, in Q3 2022, payroll employment was 3.6% above its level at the end of 2019, when GDP exceeded its level by 1.1%.

In this respect, the situation is contrasted within the Eurozone: per capita productivity has more or less recovered its pre-health crisis level in Germany, it has exceeded it in Italy, whereas it is still well below in France and Spain. This decline in productivity is probably due to several factors. One, specific to France over the recent period, probably accounts for about half of the decline: it is the massive boom in apprenticeships which has contributed directly to around a third of the growth in payroll employment since 2019. In addition, some sectors, like energy production, and especially electricity, may have suffered from specific difficulties in France, with no impact on employment. Finally, other factors (reduction compared to pre-health crisis in the effective duration of work in connection with the increase in sick leave, labour hoarding in a context of tensions over hiring, including in sectors where production has fallen, such as the automobile sector, etc.) could also concern other European countries.

Given the scenario envisaged for activity, employment is expected to slow over the next few quarters (+0.2% forecast in Q4 2022, then +0.1% in Q1 and Q2 2023). Over the forecasting period, the unemployment rate is likely to remain stable (at 7.3% of the active population), because the active population and employment are expected to grow at the same pace.