In 2023, the main world economies saw different trajectories. Europe –and especially Germany– was more exposed to the energy price shock, whereas the US economy benefited from solid fiscal support measures, among others. Meanwhile, the Chinese rebound was not as strong as expected, with the traditional drivers of growth (real estate, investment) appearing to be running out of steam.

In Europe, the energy shock is now fading and inflation has started to decline gradually, giving household consumption a little breathing space. At the same time, interest rate levels are affecting investment and credit spending. At the end of 2023, growth in the Eurozone could be at its lowest point: activity looks set to be sluggish in Q4 2023, but the recent turnaround in the business tendency surveys in German industry suggests that a rebound is possible in H1 2024, against the background of a moderate upturn in world trade. The difference in growth in the main Eurozone economies could therefore narrow.

The inflationary episode was more of a “bump in the road” for France but a much stronger “peak” for its main partners. These differences can be explained in part by the calendar and the methods used to limit price increases, such as the price cap in France. Overall, and compared to its main partners, the cumulative price increase since 2019 appears at this stage to be a little lower in France (almost +16% in October 2023 compared to 2019, according to the Harmonised Index of Consumer Prices, against almost +19% for the Eurozone as a whole, almost +20% in the United States and more than +22% in the United Kingdom).

While the inflationary surge was greater and longer-lived than had been generally expected two years ago, the latest available figures nonetheless suggest that this are not a self-sustaining dynamic, like that of the 1970s: in services in particular, where a price-wage spiral is most likely to be generated as it is determined by the cost of labour, inflation was lower than expected until November. It should continue to be sustained somewhat in the coming months but without picking up further.

Advanced indicators (producer prices, business tendency survey balances of opinion) suggest that the slowdown in inflation will continue into the coming months in France, although it may not necessarily be continuous. Thus the year-on-year increase in consumer prices is expected be around 2.5% from spring 2024 (and a little less for core inflation). After the drop in energy inflation, inflation in food and manufactured goods should also fall substantially –although prices may not necessarily come down.

After slowing in Q3 2023, the average wage per capita (AWPC) in the market sectors is expected to accelerate towards the end of the year, due mainly to large payouts in the form of profit-sharing bonuses. The year-on-year increase should then once again be greater than that of the consumer price index and should remain so throughout the forecasting period (to mid-2024), despite a slowdown of the AWPC in the spring as a result of slowing prices. The automatic increase in the minimum wage at the start of 2024 is likely to be around +1.1%.

The purchasing power of household gross disposable income (GDI) is expected to bounce back in Q4 2023, driven by earned income, and should then remain dynamic at the start of 2024 with the effect of social benefits, notably the index-linking of basic pensions to inflation. All in all, improvements in purchasing power in 2023 would seem to be in line with growth (+0.8%, or +0.3% per consumption unit –CU), with a significant contribution from wealth income, mainly as a result of higher interest rates which boost payments to savers. Household purchasing power should be more dynamic in 2024 (+1.2% overhang by mid-2024, or +0.8% per CU).

On the business side, the increase in the real cost of labour is likely to have an impact on changes in the margin rate at the end of 2023. However, this margin rate should bounce back in H1 2024 as a result of the reduction in the business value added contribution rate and a small increase in productivity. It is expected to stand at 32.8% in spring 2024, which is slightly higher than its level before the health crisis.

In November, INSEE’s business tendency surveys once again revealed a decline in both the business climate and the employment climate. At the same time, the first definitive indicators for October (household consumption of goods, industrial production) suggest sluggish growth for Q4 2023. After bouncing back this summer, household consumption appears not to have increased this autumn, partly due to the mild weather which resulted in lower expenditure on energy. Industrial production also appears to be virtually stable, whereas investment is expected to weaken. Conversely, exports should benefit this quarter from significant deliveries in the aeronautical and naval sectors. All in all over the quarter, zero growth is expected (0.0% after -0.1% in Q3). Annual growth in 2023 is expected to be +0.8%.

Activity could then accelerate a little in H1 2024 (+0.2% forecast per quarter), helped by disinflation and a moderate upswing in world trade, although the effects of past monetary tightening will probably continue to be felt in investment, hitting the construction sector particularly hard. Both consumption and industrial production are therefore likely to rise again, with corporate investment just about remaining steady. The mid-year growth overhang for 2024 is expected to be relatively modest, at around +0.5%.

Employment has continued to rise since the start of 2023, although it slowed in the wake of economic activity. In the forecast, work-study contracts, which contributed significantly to the overall increase between 2020 and 2022, should remain stable, as should payroll employment excluding work-study programmes, despite a slight acceleration in Q2 2024, in line with activity. By mid-2024, the year-on-year rise in the number of jobs created should therefore reach 0.3%, against 1.1% between mid-2022 and mid-2023.

Assuming a moderate increase in the labour force, mainly as a result of the pension reform affecting pensioners’ activity, the unemployment rate is expected to increase by 0.1 points in Q4 2023 and Q1 2024, up to 7.6% of the labour force, then stabilise in the spring.

While the main scenario is presented in this Economic outlook, other adjacent trajectories are obviously possible with regard to economic growth and also inflation. Fluctuations in oil prices and geopolitical developments more generally may, of course, affect inflation forecasts, both upwards and downwards. The impact of monetary tightening on European economies is still difficult to predict exactly. Lastly, the trade-off between household consumption and saving may also make a difference.