Per capita purchasing power should jump by 2.1% in 2019, notes Olivier Garnier, director of studies and international relations at the central bank.
The Bank of France has revised its growth forecast for 2019 to 1.3% against 1.4% in March. The slowdown in the international economy continues and threats continue to weigh.
The outlook darkens for the tricolor economy. According to the latest projections of the Bank of France published this Tuesday, June 11, GDP growth is expected to decline to 1.3% in 2019 before slightly accelerating from 2020 (1.4%). Economic analysts have revised their projections for 2019 and 2020 downwards by 0.1 point compared to March. For Olivier Garnier, director of studies and international relations at the central bank, “the best qualifier is that of resilience. Growth continues on its cruising pace. Activity is always supported by internal dynamics linked to purchasing power.
Despite this “resilience”, this downward revision is bad news for the government, on the eve of the Prime Minister’s intervention. Indeed, Édouard Philippe must make a general policy speech on Wednesday, June 12th, which is supposed to mark the beginning of act II of Emmanuel Macron’s five-year term. The tenant of Matignon must thus present “the political calendar but also the legislative projects”. A vote of confidence should also be held in the National Assembly.
Domestic demand drives growth
Domestic demand remains the prime driver of growth. An examination of the results of the banking institution shows that the contribution of domestic demand to the wealth produced amounts to 1.3 points in 2019, 1.6 in 2020 and 1.5 in 2021 against 1.3 in 2018. The economists of the Bank of France nevertheless believe that the purchasing power gains obtained by French households are slow to be felt on the consumption.
“Purchasing power gains are being consumed slower than expected. In the fourth quarter of 2018 and during the first quarter of 2019, there were very significant gains in purchasing power, but consumption was down compared to these gains. Household consumption is revised downward in 2019 but upwards in 2020 and 2021. Purchasing power gains are consumed but a little slower. This supports the activity by 2020/2021, “explains Olivier Garnier.
Per capita purchasing power is expected to jump 2.1% in 2019. “This is the biggest gain in purchasing power since 2007. Next, purchasing power should evolve around 1.2% in 2020. and 1% in 2021, “he continues.
Slowdown in household investment
In terms of investment, households have slowed down spending on housing construction and maintenance. “The recent decline in sales and housing starts suggests that this slowdown could continue for most of 2019.”
For businesses, if the pace is higher, the trend is also down. It should increase from 5.5% in 2017 to 3.2% in 2018, 2.7% in 2019 and 2.4% in 2020. Finally, public investment should increase again in 2020 to 2.8% against 2, 4% in 2018. However, it should slow down in 2020 to 1.4%.
Emergency measures favorable to purchasing power
Several factors explain this relatively good dynamics of purchasing power. Following the “yellow jackets” crisis, the President of the Republic announced an arsenal of devices designed to boost the French purse on December 10, 2018. “Measures in favor of purchasing power in December 2018 and other measures are taken into account from 2020 as the reindexing of pensions of less than 2,000 euros pensions, the continuation of the abolition of the housing tax, “said Olivier Garnier at the press conference. “On the other hand, the income tax cut announced by the government was not taken into account because of the lack of details of these measures. “
The other reason for the good health of purchasing power is the moderate pace of inflation, which should fluctuate around 1.3% -1.4% by 2020 and 2021. The fall in oil prices between 2018 and 2019 and the abandonment of the domestic consumption tax on energy products (TICPE) would have a favorable impact on total inflation. “Currently, we are 10 euros lower than in mid-May,” for the barrel of Brent.
The French seem to favor precautionary savings according to the results presented by the organization. “When you get purchasing power, households do not consume it right away. They saved even more than we expected. In the last quarter of 2018 and the first quarter of 2019, the increase in gross income was 8.5 billion while the increase in consumption was 3.1 billion. Almost two-thirds of this extra purchasing power has been saved while the savings rate is already 15%, “says Olivier Garnier.
“For the moment, the strong gains in purchasing power have only been reflected in a very partial way in household spending and the savings rate has risen sharply,” adds the Bank of France.
Savings could increase sustainably by remaining above 15% until 2021.
At the level of unemployment, the rate in the sense of the International Labor Office (ILO) could further decline from 9.4% in 2017 to 8.1% at the end of 2021 over the whole of France. The slow slowdown in growth, the still favorable level of job creation and the decline in the active population should help to bend the unemployment curve by the end of the five-year period of Emmanuel Macron.
During his campaign, the former Minister of the Economy under Francois Hollande had promised to reach an unemployment rate of 7%.
A less buoyant international context
The statisticians of the Bank of France have revised downward their projections compared to March due to a less favorable international context. “Global demand to France is revised downward beyond 2019, which is explained by the extra-euro area environment, particularly emerging Asia, China, Turkey and also within the European Union. eurozone with Italy and Germany which are significantly revised down and remain lower than France, “says Olivier Garnier.
For now, no prospect of appeasement is looming in the short term. US Secretary of Commerce Wilbur Ross said on Tuesday that the United States and China would not announce a trade treaty at the G20 summit in late June in Japan while Donald Trump intends to discuss the subject with his Chinese counterpart Xi Jinping .