ECONOMY
FRANCE
French economy flatlines in first quarter
French growth crashes to zero in first quarter as
households reduced their consumption due to rising inflation and the war in
Ukraine, the national statistics agency said on Friday.
Le Monde
with AFP
Published
on April 29, 2022 at 14h22, updated at 15h04 on April 29, 2022
The
zero-growth result was weaker than the INSEE agency's pre-war forecast of a 0.3
percent expansion, underlying the economic difficulties faced across Europe.
The
French annual inflation rate also accelerated to 4.8 percent in April, up from
4.5 percent the month before, INSEE said in a separate statement.
"Gross
domestic product is at a standstill ... it bears the mark of the two combined
external shocks (Covid and the Omicron variant in January, then the war in
Ukraine that strengthened inflation)," INSEE economist Julien Pouget wrote
on Twitter.
The figure
puts an end to France's strong economic rebound from the Covid-19 pandemic and
poses a challenge to President Emmanuel Macron, who was re-elected last
weekend.
Economic
growth had been clocked at 0.8 percent in the last quarter of 2021 and 3.0
percent in the third.
European
economies have been badly affected this year by supply problems linked first to
the pandemic, then the war in Ukraine – as well as sanctions imposed on Russia
following its February 24 invasion of its neighbour.
Figures
also released Friday showed that the eurozone's GDP growth slowed to 0.2
percent in the first quarter, with a Germany eking out a similar gain as it
avoided a second consecutive quarterly contraction.
Italy's
output fell 0.2 percent while Spain's growth slumped to 0.3 percent in
January-March.
Fuel price shock
Fears
that Moscow could cut Europe's largest economies off from its fossil fuels have
again surged after it ended gas deliveries to Poland and Bulgaria this week.
Many
consumers in France and its neighbours say they are cutting back on their
purchasing as the cost of fuel reaches record levels.
INSEE
said there had been a 1.3 percent fall in French consumer spending in the first
quarter – falling short of economists' expectations.
"The
motor of the French economy has come to a halt, just when we had barely reached
levels from before the health crisis," said Allianz economist Ana Boata.
The
French government implemented a cut of 15 euro cents ($0.16) per litre at the
pump for vehicle owners in April, which INSEE said would have an impact on the
headline inflation rate.
The
government has also capped electricity and gas prices this year, with total aid
estimated at around 25 billion euros ($26 billion).
Paris is
expected to pass further support for consumers in the next few months with
parliamentary elections looming in June.
Over the
full year, the Bank of France still predicts expansion of 2.8 percent, around
the same level as the International Monetary Fund.
Boata
highlighted that France boasts "factors of resilience" like a strong
construction sector, still-growing business investment borne up by spending on
digitalisation, rising industrial output and reinforced foreign trade.
The
country also produces most of its electricity from nuclear power, meaning it is
more insulated than its European neighbours against the huge increases in the
price of fossil fuels in recent months.
Eyes
across the continent will be turned on the European Central Bank for possible
inflation-fighting moves later this year.
Although
its chief Christine Lagarde has said that raising interest rates would not
bring energy prices down, some observers predict the Frankfurt institution will
be forced to act in the coming months.
Le Monde
with AFP
Hit by high inflation, French small businesses
see their margins shrink
As raw material and energy prices soar, thousands of
companies are caught between greedy suppliers and dissatisfied customers.
By Béatrice
Madeline
Published
on April 29, 2022 at 10h13, updated at 10h14 on April 29, 2022
"First,
cotton prices skyrocketed. The cost of the raw material increased threefold
over two years. Dyed yarns rose by 50% in one year. Then polyamide, then
elastane, then pigments for dyeing socks rose by nearly 50% in March alone,
because they come from Eastern Europe. Shipping costs exploded at the same
time. Bringing in a container of cotton from India costs us seven times more
[than in 2021]!" Alexandra Broussaud, head of Maison Broussaud, a
family-owned small business that has been making socks for several brands in
central France since 1938, now spends much of her time calculating and
recalculating costs.
She is
struggling to ease the squeeze between greedy suppliers and disgruntled
clients. "In the first few months, we tried not to pass on the increase by
eating into our margins. But that's not sustainable. The company's long-term
survival is at stake. My customers tell me that they cannot accept any more
price increases. They can't sell a pair of socks for more than 14 or 15 euros.
That just won't work."
In a
completely different business sector, Aurore Lebon has to deal with the same
difficulties. "Every material is impacted: Brass, which is produced in
only two European countries, Italy and Germany, has increased by about 20 %
since September [2021]. The same goes for paints. We're running out of metals
and electronic components to produce motors for our blinds," said the
president of Gauthier & Cie, a craft business manufacturing high-end
curtain rods and blinds 90 kilometers southwest of Paris, near Chartres.
Inflation
is not only eroding the purchasing power of households, it also puts thousands
of small and medium-sized businesses in a difficult situation. You don't need
to import raw materials, use sophisticated machine tools or rare metals to be
affected. The surge in energy prices is hitting every business, even in the
personal services sector.
'Negotiations
can be very tough at times'
Ludovic
Faroult runs a small gym in the center of Creutzwald in the Moselle region of
eastern France. "The electricity bill for heating and lighting the gym,
which is open seven days a week, from 6 a.m. to 11 p.m., has increased by 30%
since the end of 2021. It is impossible to play with membership fees. We are
already in a very delicate financial position, with three local competitors.
And we just heard that a new gym is going to open!"
Transport
operators are struggling with soaring cost of gas weighing on their expenses to
the tune of 30% to 40%. "Heads of companies sometimes have a hard time
passing on the extra cost. Resulting negotiations are occasionally very tough,
because these are often small family businesses with little clout compared to their
customers," said Olivier Hiceb, who is based in the south-west of France
where he heads the regional road transport federation.(…)
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