GDP flatlines in Q4

The French economy stagnated in seasonally adjusted quarter-on-quarter terms for the second consecutive quarter in Q4. On an annual basis, economic growth edged up to 0.7% in Q4, from the previous period's 0.6% increase. Over 2023 as a whole, the economy expanded 0.9%, markedly below 2022’s 2.5% expansion.

Private consumption shrank 0.1% in Q4, marking the worst result since Q4 2022 (Q3: +0.5% s.a. qoq). In addition, fixed investment contracted 0.7% in Q4, marking the worst reading since Q2 2020 (Q3: +0.2% s.a. qoq). In contrast, public consumption growth was stable at Q3’s 0.3%. As a result, domestic demand excluding inventories detracted 0.1 percentage points from growth, deteriorating from a positive 0.4 percentage point contribution in Q3. The downturn in domestic demand came on the back of tighter financing conditions; the ECB hiked its key interest rate to a record-high 4.50% in September and held it at that level throughout the quarter. On the external front, exports of goods and services fell at a milder rate of 0.1% in Q4 (Q3: -0.6% s.a. qoq). Conversely, imports of goods and services dropped at a more pronounced rate of 3.1% in Q4 (Q3: -0.4% s.a. qoq), marking the worst reading since Q1 2023. Consequently, net foreign trade contributed 1.2 percentage points to the headline reading, up from a 0.1 detraction in Q3.

The Consensus is for GDP to expand at a similarly subdued pace in 2024 compared to 2023. Weaker fixed investment growth will weigh on the outlook. That said, lower inflation is set to boost private spending. Moreover, recovering Euro area demand should support the industrial and external sectors. Higher-for-longer interest rates, political tensions and social unrest are downside risks.

Charlotte de Montpellier, senior economist at ING, commented on the outlook: “Looking ahead, there are few indicators that suggest the economy will pick up strongly in the first quarter of 2024. In fact, we expect stagnation to persist. We expect the French economy to recover only gradually in the course of 2024, with growth picking up slightly in the second quarter and then accelerating in the second half of the year.” Meanwhile, analysts at the EIU, commented on risks to the outlook: “The main risk to the economic outlook in 2024 is that the French economy will enter a recession in the coming quarters. There is a risk that the pass-through of recent rate increases into the real economy will be more forceful than we currently expect, and that financial conditions will tighten too severely, resulting in a contraction in credit demand from both households and businesses.”

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