Stagnating activity and persistent inflation
The economy slowed sharply at the end of 2022 and the beginning of 2023, due to sluggish domestic demand against a backdrop of persistent inflation. While limiting the rise in gas and electricity prices (energy price cap) enabled the country to post the lowest inflation rate in the European Union over 2022 as a whole, the lifting of the fuel rebate and the 15% rise in electricity and gas tariffs on 1 January 2023 fuelled inflationary pressures during the first half of the year. Owing to price rises taking root (underlying inflation of 5% in July 2023) and wage acceleration (+4.6% in the second quarter of 2023), inflation should ease very gradually in the second half of 2023. In 2024, wage increases should, all told, be slightly higher than falling inflation, so that households will see their purchasing power rise again. While the uncertain environment will remain conducive to precautionary saving, household consumption should rebound. However, at the same time, households’ property investment, which has been falling steadily since mid-2022, will remain at half-mast in an adverse environment in which the ECB will keep interest rates very high until (at best) the second half of 2024. Restrictive financing conditions (in terms of both interest rates and lending criteria) will also have a considerable impact on businesses, which will have to cope with persistently limited demand, even as their costs continue to rise (accelerating wages, repayment of government-guaranteed PGE loans). Under these conditions, despite a marked slowdown in investment and hiring, business margins and cash flow will be under pressure. Business insolvencies, which began to rebound in 2022 after two years of historically low figures, returned to their pre-pandemic level in the first half of 2023 (up 2% on 2019). As the companies affected are on average larger, the financial cost is much greater. While the rise in imports will be limited by the sluggishness of domestic demand, exports will still be driven in 2024 by the gradual normalisation of the important aeronautical sector. Foreign trade should therefore continue to make a positive contribution to growth, despite the relative stagnation of activity in France’s main partner countries.
Durably high public deficit
After rising sharply as a result of the Covid-19 pandemic and the measures taken to deal with the consequences of the war in Ukraine, the public deficit will remain high in 2023 and 2024. Although the measures taken to combat inflation should not be renewed in 2024, the savings made will be largely offset by increases in civil servant salaries, in line with high inflation, and by additional spending on justice, the police, defence and the ecological transition. At the same time, interest charges will continue to rise in line with interest rates and inflation. Public debt will therefore remain very high, and its sustainability will be one of the main challenges even though the European Union budgetary rules, which were suspended in 2020, will resume in 2024.
After soaring in 2022 in the wake of the energy bill, the current account deficit should remain more moderate in 2023 and 2024. With energy prices –particularly gas – still high but far from the record levels of 2022, the balance of trade in goods will show a smaller deficit (1.6% of GDP in the first half of 2023). The surplus on services (0.7% of GDP), which was historically high in 2022 thanks to the recovery in tourism and, above all, maritime transport, where freight rates reached record levels before falling back at the end of the year, should be more moderate. The current account deficit is financed by debt issues or listed shares purchased by non-residents. At the end of March 2023, non-residents held more than half of the securities issued by general government (51%), non-financial companies (56%) and French banks (70%).
No absolute majority for President Macron, and a high risk of political and social instability
In power since 2017, President Macron, leader of the centre-liberal La République En Marche (LaREM) party, was re-elected for a second term in April 2022. Although he again won in the second round against Marine Le Pen of the far-right Rassemblement National (RN), this time the score was much closer (58.5%-41.5%, compared with 66%-34% in 2017). In the legislative elections that followed two months later, his party won a mere 170 of the 577 seats in the National Assembly. After forming an alliance with two other centre-right parties, it won only 250 seats in total and, as such, the government is forced to negotiate agreements on each reform, or pass it without a vote in the National Assembly, leaving itself exposing to a possible vote of no confidence. The main two opposition forces are the RN (88 MPs) and the left-wing alliance NUPES (149 seats, including 74 for the far-left LFI party). Both have tabled numerous no-confidence votes against the government since the start of the second term of office, which gives Les Républicains (right-wing, 62 seats) a central role both in approving reforms and in ensuring the continuity of the government in the event of fresh votes of no confidence motions, which have so far been consistently rejected. However, the failure to get the pension reform law approved in March 2023 despite the support of the Republican leaders illustrates the patchy nature of this group of MPs, which makes it difficult to pass any major reform.
Following the death in April 2021 of President Idriss Déby who was killed by rebel forces, his son Mahamat Déby took office with the consent of the African Union, given the urgent security situation, despite challenges to his legitimacy. In September 2022, the "transitional" President was given broad executive powers by a meeting of co-opted persons such as the new Prime Minister, Saleh Kebzabo. The transition, which can last up to two years (from September 2022) is still ongoing. While 2024 will probably see elections (presidential and legislative) resulting in a cabinet reshuffle, Mahamat Déby may stand as a candidate and retain the Presidency. While no elections have taken place in the country since 2015 (successive postponements owing to the security context and the subsequent death of Idriss Déby), the next elections will take place in a tense context. The army is omnipresent and the repression of opposition is severe (as was the case of the anti-government demonstrations on 20 October 2022, in response to the announcement of the extension of the transition and the eligibility of members of the transition for the next elections, which were violently repressed, resulting in more than 100 deaths and 300 injuries), in addition to the security threat from Sudan, which is high. The conflict in Sudan could also be a source of instability due to the large influx of Sudanese refugees via the introduction of a humanitarian corridor amid a state of food emergency that was declared in Chad in 2022 and a serious humanitarian crisis. Furthermore, although the junta intends not to take sides in the conflict affecting its neighbour, the geographical proximity of the two countries, as well as the proximity of their communities (the President's family is from the Zaghawa ethnic group, which is in the majority in Sudanese Darfur, one of the two main areas of fighting) and their history, has exacerbated fears of increased tensions within the country and a resurgence of the terrorist threat.
Le déficit du compte courant devrait se réduire en 2024, dans le sillage d’exportations dynamiques qui participeront à l’élargissement de l’excédent commercial. Cependant, il sera encore entretenu par une balance des services (principalement de transports) déficitaire (5 % du PIB), et le rapatriement de bénéfice des sociétés étrangères (principalement dans le secteur minier). L’instabilité politique et sécuritaire persistante continuera de limiter les entrées d’IDE et l’aide extérieure.