In 2023, while US growth held up (+2.5%), activity in the Eurozone remained flat overall (+0.6%), hampered by high energy prices and the effects of monetary tightening. However, since the start of the year, European economies seem to be slowly recovering: the Eurozone (+0.3%) and the United Kingdom (+0.7%) returned to growth in Q1. For the moment this growth is mainly due to foreign trade, while the contribution of domestic demand remains modest. Conversely, growth in the United States (+0.4% in Q1) was still driven by robust internal dynamics, and in particular by a favourable budgetary policy direction.

Domestic demand is expected to gradually take over in supporting European growth. Inflation has fallen back significantly and real wages are picking up after two years of decline, which bodes well for household consumption. However, improvement in investment is likely to remain limited, with funding conditions remaining restrictive overall despite easing slightly. Within the Eurozone, cyclical divergences look set to remain in place throughout the spring: the German economy is expected to continue to slide while Spanish growth is unlikely to weaken much. In H2, situations are expected to converge somewhat, as consumption and investment in Germany start to recover. On the other side of the Atlantic, strong job creations are likely to continue to keep consumption dynamic until the end of the year. Expressed as a year-on-year variation, growth in the Eurozone at the end of the year (+1.1%) looks set to remain below that of the United States (+1.9%).

In France, there was a moderate improvement in activity over two quarters (+0.2% in Q1 2024 after +0.3% at the end of 2023). As elsewhere in Europe, this growth was the result of a powerful contribution from foreign trade. In June 2024, the business climate remained a little below its long-term average, suggesting that, for the moment, growth would keep to a similar trend and is expected to settle at +0.3% in Q2. In H2, the quarterly profile for activity is expected to be significantly affected by the hosting of the Olympic and Paralympic Games in Paris this summer, which should boost growth by 0.3 points in Q3 (to +0.5%): as well as ticket sales and broadcasting rights generated as the Games take place there is also expected to be a surge in tourist activity. As this is a one-off effect, activity is then expected to react and come to a standstill by the end of the year (-0.1%). Across the whole of 2024, growth should reach +1.1%, i.e. as much as in 2023.

Inflation has fallen back sharply, to +2.1% year-on-year in June 2024 against +4.5% a year earlier. Note that the composition of inflation has changed considerably: prices of food and manufactured products have stabilised and inflation is now driven mainly by the price of services. In this sector companies pass on previous increases in their wage costs to their customers. Wage rises remain moderate, however, and are not generating a wage-price spiral: after two years of decline (in 2022 and 2023), real wages are expected to rise only modestly in 2024.

In addition to real wage gains, households are also receiving increased benefits, primarily pensions and, to a lesser extent, property income which is still dynamic. All in all, the purchasing power of gross disposable income per consumption unit is likely to increase by +0.9% in 2024 after +0.3% in 2023 and -0.3% in 2022. This rise in purchasing power occurred mainly in Q1 2024, with most increases happening at the beginning of the year.

Consumption has increased modestly over the last six months (+0.1% after +0.2%) and is expected to accelerate by the end of the year, driven by improved purchasing power. However, although household confidence has been improving since its low point of mid-2022, it remains well below its long-term average. Thus the rise in consumption is not expected to exceed that in purchasing power and the savings ratio is likely to stabilise at a high level at the end of the year, at around two to three points above that observed in 2019. The quarterly consumption profile will probably be very much affected by the Olympic and Paralympic Games, with two thirds of the expected spectators being French residents.

Exports were vigorous at the end of 2023 and the beginning of 2024, driven by the recovery of world trade. By the end of this year they are expected to improve in fits and starts in line with aeronautical and naval deliveries. On average in 2024 they should improve (+3.5%) much more rapidly than imports (+0.8%), with the result that the contribution of foreign trade to growth should be distinctly positive (+0.9 points). On the other hand, part of this contribution is expected to derive from changes in inventory levels, which companies considered to be too high overall at the end of 2023. In addition to destocking, it reflects the short-term contrast between France and the rest of the world, the gradual recovery of aeronautical sales and a one-off effect of the tourist activity resulting from the Olympic and Paralympic Games. Thus the economy is expected to regain some export market share in 2024, although without wiping out all the losses that have occurred since 2019, due in part to the increase in energy prices.

Investment has fallen back sharply since the end of 2023. Concerning households, where the decline has been continuous for two years, the end of the tunnel is perhaps in sight: housing starts have stabilised in recent months (at a low level) and housing purchase intentions expressed before the election process got underway have picked up slightly. Regarding corporate investment, the tightening of financing conditions has led to a substantial turnaround in investments since mid-2023. According to the business tendency surveys, in April, companies were slightly less pessimistic about their purchasing intentions than in January, due to demand prospects. Company margins have certainly remained a little higher than in 2019, but this is a very mixed observation as it is based mainly on industry, and on the energy sector in particular. In addition, these extra margins have been absorbed by the increase in financial costs, limiting the self-funding of projects. Finally, since 9 June, financial markets have become more volatile, suggesting a possible effect of uncertainty, which may generate a type of wait-and-see attitude. All in all, corporate investment is expected to stabilise, caught between the slight improvement in demand prospects, in a context of uncertainty, and difficult financial conditions.

After solid growth in Q1 (+0.3%), employment is expected to slow a little, with companies rather less optimistic in June about their past and future hiring. Across the year, employment is expected to increase by +0.6% (or around +185,000 jobs), a similar rate to last year. Per capita productivity should continue to pick up, and get back to its pre-Covid trend, although without making up for the losses recorded since 2019. Meanwhile, the labour force is expected to increase a little more quickly (about +230,000), especially with the further ramping up of the retirement pension reform. The unemployment rate stood at 7.5% at the start of 2024, and is expected to rise a little, to 7.6% by the end of the year.

This forecast is currently up to date: it is based on an analysis of short-term economic indicators, the most recent of which cover May 2024, and on responses to the business tendency surveys collected from economic stakeholders in June, mainly before the dissolution of the French National Assembly was announced. Any change in the political situation in France is thus a major uncertainty in the scenario, and any measures that may be taken by a new Government are not taken into account. Regarding the budgetary impetus, the forecast is based only on measures that have been voted, notably the credit cancellations decided early in the year. In addition to budgetary policy, a new political context may modify behaviour: for households, major electoral episodes in the past often resulted in a temporary rise in optimism, however, the current situation is somewhat unprecedented; for companies, changes in the financial indices reflect increased uncertainty, which may generate a kind of wait-and-see attitude, especially over investment decisions. However, any impact may prove to be on a larger scale than suggested here. For the time being, the difference in borrowing rates between the different Eurozone countries has resulted in a drop in German rates rather than an increase in rates in the other countries, a sign that tensions are relatively well contained at the time this Economic Outlook is being finalised.