France Economic Outlook
Quarter-on-quarter GDP growth slowed in Q3 due to destocking and a contraction in exports. On the flip side, domestic demand—barring inventories—strengthened amid lower inflationary pressures. Shifting to the last quarter of the year, momentum likely remains subdued. Economic sentiment weakened in October amid a worsening backdrop in the industrial, construction and retail sectors. Moreover, in the same month, the manufacturing PMI posted its sharpest contraction since May 2020. More positively, October services data painted a less downbeat picture of the sector. In other news, in mid-November, the government reached an agreement with state-owned nuclear producer EDF on future energy costs. The deal includes a windfall tax in the event of a price surge with the aim of shielding households and businesses.
Harmonized inflation fell to 4.5% in October from September’s 5.7% on softer price pressures for food and transportation. Inflation is seen declining in the coming quarters as the effect of monetary tightening fully filters through the economy. That said, it is forecast to remain above the 2.0% ECB target through end-2024. Commodity price spikes pose an upside risk.