France posted a gross domestic product (GDP) growth rate of 0.1 percent in the fourth quarter of 2022, allowing the country to escape a recession for the time being.
This GDP growth rate slightly decreased from the previous quarter’s growth of 0.2 percent. During Q4, household consumption declined steeply at 0.9 percent, mainly because of reduced food and energy purchases.
Consumption decline, however, was offset by the dynamic gross capital formation. The figure remained on the green at 0.8 percent, falling from the previous quarter of 2.3 percent, thanks to the positive contribution of foreign trade, where exports performed better than imports.
Overall, France’s GDP rose by 2.6 percent in 2022. It was a significant dip compared to the GDP rate in 2021 when the country recorded a 6.8 percent GDP increase, but better than the GDP loss of 7.9 percent in 2020.
According to analysts, the new data shows France’s economic resilience, especially with the crisis in Ukraine that started last year. Despite that, analysts warned that most of France’s GDP growth resulted from the “carry-over effect” of 2021’s growth.
Data suggests that the economic situation in France will remain uncertain in the coming months. However, it is unlikely that the economic situation will encounter a “dramatic” drop in 2023. Many analysts asserted that the risk of a recession was relatively low for France.
The downside is the difficulty for the economy to rebound from slow-paced growth. Recently released purchasing manager’s index (PMI) showed signs of declining demands in France.
Consumer confidence in the market remains at historic lows, while French citizens maintain a poor economic outlook based on the government’s survey.
Analysts also expected inflation to continue to increase in the first six months of 2023, reducing people’s purchasing power and hampering the market dynamism.
The low consumer demand will affect companies, as they will be more focused on clearing their inventories due to falling orders. Companies also need to deal with difficulty securing business investment due to the impact of the European Central Bank’s tight monetary policy.
This year, France’s overall GDP growth is expected to be only around 0.4 percent, with growth stagnation across all quarters. Later in 2024, the economic growth will improve slightly to 1.2 percent due to a more visible decline in inflation.
The German economy unexpectedly shrank in the fourth quarter, a sign that Europe's largest economy may be entering a much-predicted recession, though likely a shallower one than originally feared https://t.co/xKGDFQ9izP pic.twitter.com/frY0lFnYEw— Reuters (@Reuters) January 31, 2023
Eurozone beats expectations in Q4 2022
Alongside France, the Eurozone generally beat expectations of an economic downturn in the last quarter of last year. Analysts explained that a milder winter and government support helped reduce the negative impact of soaring energy costs, which eventually supported slight economic growth.
Last year, economists predicted that the Eurozone’s economy would contract by 0.1 percent in Q4. They also projected another economic contraction in the first quarter of 2023.
In 2022, the overall GDP growth for the entire Eurozone was 3.5 percent. Bert Colijn, an economist at investment bank ING, said the ability to beat the previous projection proved Eurozone’s “incredible resilience.”
The GDP data released Tuesday is expected to influence the ECB’s decision to increase its benchmark interest rate. Analysts and investors predict a 50-basis-points increase on Thursday, raising the rate to 2.5 percent.
Spain reported a GDP growth rate of 0.2 percent last week. However, the country experienced falling imports rate like France. Spain also reported declining household and business demands last year.
Although Spain and France’s new data was “encouraging news” for Europe’s economy, Germany suffered an economic slowdown last quarter.
On Monday, the German government reported an economic contraction of 0.2 percent, putting Europe’s largest economy at the cusp of a recession.
“The worst scenarios for this winter have been avoided,” Colijn said. “But the economy remains sluggish.”