Economic output declined in the first quarter of 2022 (-0.2%) on the back of peaking COVID cases in January and the outbreak of the war at the end of February. During the subsequent quarters, GDP growth is expected to come back into positive territory thanks to the full lifting of pandemic-related restrictions. The rebound is, however, set to be limited in the second quarter (+0.2%) before slightly accelerating in the third quarter thanks to the expected improvement in tourism activity during the summer. GDP is then forecast to grow moderately over the rest of the forecast horizon, dampened by persistent supply bottlenecks and subdued internal demand in a context of declining real wages and tightening financial conditions. Overall, GDP is projected to increase by 2.4% in 2022 and 1.4% in 2023.
Last update : Summer 2022 Economic Forecast (14/07/2022)
|GDP growth (%, yoy)||-7,8||6,8||2,4||1,4|
|Inflation (%, yoy)||0,5||2,1||5,9||4,1|
Both internal and external demand contribute to the deterioration of the outlook. After the sharp decline in the first quarter of 2022, private consumption is set to be further dented by the soaring inflation. The full lifting of restrictions is therefore expected to allow only a partial rebound in the second and third quarter. Private consumption is then projected to grow slowly until the end of the forecast period, leaving the saving rate above its pre-crisis level. While receiving support from the RRF, investment is expected to suffer from the gradual tightening of financial conditions and persistent supply disruptions (affecting both construction and equipment). It is set to slow down, yet to remain in positive territory. Both exports and imports are expected to be much less dynamic than previously anticipated, as a result of the deterioration of both external and internal demand. However, the rebound of tourism and the gradual recovery of transport equipment (both aircraft and ships) would allow net exports to contribute positively to growth in 2022 and 2023, although slightly less than expected in spring.
HICP accelerated sharply in the second quarter of 2022 (+5.9% y-o-y), pushed up by energy prices but also by a pickup in core inflation. Inflation is projected to keep increasing and to peak in the second half of 2022, despite the slight slowdown in energy inflation due to important base effects. The delayed pass-through of increases in the prices of energy and food commodities and – to a lesser extent – wages, as well as persistent supply disruptions are set to fuel core inflation, which is forecast to reach 5.1% in the last quarter of 2022. In 2023, headline inflation is expected to gradually decrease in the wake of energy prices. Core inflation is projected to decline more moderately, supported by higher wages and persistent supply shortages. Overall, HICP is set to increase by 5.9% in 2022 and 4.1% in 2023.
The risks to this forecast are tilted to the downside. In particular, important electricity supply constraints could materialise this winter in France because of unexpected maintenance on a significant part of its nuclear power plants. The possibility to import electricity to compensate the depressed national production is hampered by the severe constraints on gas supply.