The French economy resists in the second quarter, the peak of inflation "probably reached"

The French economy should continue to resist modestly in the second quarter as prices ease in the main sectors of activity, the Banque de France announced on Thursday, signaling that the peak of inflation will “probably be reached” over the period. Between April and June, the gross domestic product (GDP) would progress according to its forecasts of 0.1% compared to the first quarter, where it had increased by 0.2%. “Month after month, activity continues to progress even if it is at a moderate pace,” said Olivier Garnier, director general of statistics, studies and international affairs at the Banque de France on Thursday, presenting the new the institution's monthly business survey.

This forecast for the second quarter is lower than that of the National Institute of Statistics (Insee), which expects a 0.2% increase in GDP. The “resilience of activity” would be based on an increase in industry and services in May, which should continue in June, explained Olivier Garnier about this survey carried out by the Banque de France among around 8,500 companies. between May 26 and June 5. The building sector should also experience an upturn in June, especially in finishings, after a decline the previous month, particularly for new builds. "We are more in a scenario of continued growth but (...) we do not really see at this stage any potential for acceleration," said the manager.

On the price front, the Banque de France reported an improvement, in a context of inflation which remains high, however. Like the previous month already in the industry, which is returning to a rate of increase in prices comparable to the pre-Covid period, “we are now also seeing a clear inflection in the prices of services”, underlined Olivier Garnier. Prices are also slowing in construction. "This confirms our belief that the peak of inflation is probably reached during the second quarter of this year, and that we should see a slowdown during the second half," he added.

According to an initial estimate by INSEE, inflation marked a marked slowdown in May in France, benefiting from a serious slowdown in energy, the origin of the inflationary shock but since supplanted by food. Prices thus continued to rise over one year, by 5.1%, but less sharply than in previous months (5.9% in April and 6% at the start of the year). According to the Banque de France, this relaxation in prices is benefiting in particular from fewer supply difficulties. In industry, 23% of companies surveyed mentioned them in May, compared to 28% in April. The proportion drops from 17% to 15% in construction. "In many sectors, we are almost back to normal," said Olivier Garnier.

But if the manufacturers mention a “marked drop” in the prices of raw materials in May, they doubt that they will be able to pass it on in its entirety to the selling prices because of the increase in the cost of inputs and wage increases. Thus, 5% of manufacturers say they lowered their selling prices in May, 10% increased them and even 13% in the food industry, a sector accused by the government of dragging its feet to revise its prices downwards. In services, 12% of companies say they have raised their prices, compared to 19% in April.

As factors less favorable to growth, Olivier Garnier cited the further increase in inventories of finished products in May in most sectors, reflecting less dynamic demand from customers. Despite a slight downturn, recruitment difficulties remain high, according to 49% of the companies consulted. Manufacturers are also anticipating a further decline in their order books. For the year as a whole, the Banque de France is still expecting GDP growth of 0.6%, lower than that forecast by the government (1%) and much lower than the 2.6% recorded in 2022.