A new presidential term in an uncertain economic climate

In the wake of Emmanuel Macron's re-election, France's economic situation appears to be one of the main challenges of this new presidential term. In a global context disrupted by the war in Ukraine, and with inflation holding back consumption, the stakes are high for the next 5 years.

A troubled global economic environment

While a number of economic indicators, such as the unemployment rate and hiring prospects, give cause for optimism, the first signs of a possible recession are already present.

Business activity in France did improve in March, but the Banque de France has had to revise its growth forecast for the first quarter of 2022 downwards. While the initial estimate was for GDP growth of 0.5%, the central bank is now counting on first-quarter growth of 0.25%.

In the first 9 months of 2021, business had risen by almost 5% after 2020, a year marked by the start of the Covid-19 pandemic and confinements, before slowing to 0.7% at the end of 2021.

Russia's invasion of Ukraine and the ensuing international sanctions make the outlook for business very uncertain over the coming months, as does China's "zero Covid" policy, which is forcing some factories to close and disruptingsupply chains.

Towards a possible recession

According to IMF economists, France is set to record growth of less than 1% between the end of 2021 and the end of 2022, and some analysts are even forecasting a fall in GDP in the spring and summer.

Inflation, which reached 4.5% in March, is no stranger to this potential recession, curbing household consumption. Even if wage increases are implemented, they will not be enough to offset rising prices and avoid the loss of purchasing power expected in 2022.

Emmanuel Macron is not the only president of the Fifth Republic to have to deal with a troubled economic context. But unlike Valéry Giscard d'Estaing, Nicolas Sarkozy or François Hollande, this uncertain economic situation became apparent from the start of his second term.

The context is therefore very different from that of 2017, when Emmanuel Macron's first term in office began with growth in full swing, at a rate of over 2%.

The consequences of rising prices

Rising prices for energy and many other raw materials will also have a double impact. Firstly, on companies, some of which will be able to pass on these increases in their sales prices, with the consequent reduction in purchasing power and hence household consumption.

On the other hand, companies unable to increase their rates will see their margins squeezed and will have to adjust their investments accordingly, especially as other factors are likely to weigh on their cash flow, such as rising interest rates and the repayment of state-guaranteed loans.

Finally, the second impact of this price rise is expected on the employer-employee side. Wage demands are likely to multiply in response to this loss of purchasing power, and strikes can be expected as early as September 2022.

Against this inflationary backdrop, the European Central Bank has decided to end its asset purchases in the summer of 2022, thus making public money increasingly scarce. As a result, the French government will have to reduce public spending, which is unlikely to ease social tensions.