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Laurent Ferrara analyses the surprising drop in French economic activity in a paper
In an article entitled “The Surprising Drop in French Economic Activity”, published on economic analysis website Econbrowser, Laurent Ferrara, Professor of International Economics at SKEMA, examines the decline in economic activity noted in France in the first quarter of 2022.
In his analysis, the economist discusses France's null GPD growth, a figure he considers striking, and which follows buoyant economic growth in 2021. "After few months of rather flat economic activity just after the exit of the Covid recession (in 2020q2), the French economy was indeed recovering quite rapidly in 2021," writes Laurent Ferrara.
According to the article, this figure is due to a decline in household consumption compared to the previous quarter. "The negative contribution of consumption to GDP growth is of -0.6 percentage points. Investment and net trade still show a positive contribution to GDP growth. In fact, since last year, the bulk of the GDP growth variance is due to changes in household consumption," says Laurent Ferrara, drawing on data from INSEE, the French National Institute of Statistics and Economic Studies.
What are some possible explanations for this?
The professor of international economics then develops by providing several possible explanations for the fall in household consumption. The first is the sharp rise in the price of commodities, particularly oil and gas, leading to an increase in consumer prices as a knock-on effect. "A strong global demand associated with supply constraints initially generated a sharp increase in inflation starting with the exit of the Covid recession.
On top of that, Russia's invasion of Ukraine starting from 24 February 2022 added another layer of upward pressures on consumer prices, making inflation in France was 4.8% in April 2022. So the loss of household purchasing power related to increasing consumption prices can be viewed as a first explanation," states the article.
"A normalization in the consumption behavior of households"
For Laurent Ferrara, another factor contributing to the phenomenon is "a normalization in the consumption behavior of households after months of sustained expenses," especially in the restaurant, hotel and transport sectors. In the remainder of the article the economist also analyses consumer uncertainty, sparked by the war in Ukraine on the one hand, but also by the political situation in France resulting from the recent presidential elections and the upcoming legislative elections.
Read Laurent Ferrara’s full analysis on Econbrowser
