But the momentum may be short-lived. This is not a common situation for France, which is more accustomed to breaking trade deficit records. But in 2024, exports have been vigorous so far, up 1.9% for the Banque de France, which updated its forecasts for 2024-2026 on September 17, while imports are nose-diving by 1.7%. The improvement is already visible in the trade balance, which is in deficit by €82 billion over the twelve months to the end of August compared to €100 billion in 2023.
Aeronautics accounted for almost all of France’s growth in 2024
This dynamism in exports is due to catch-up logic. In the aeronautics sector, deliveries of planes and cruise ships fell to their lowest level during the pandemic. Since then, they have restarted, driven by the full order books of Airbus and its subcontractors. Another more limited effect: the gradual restart of nuclear power plants by EDF, throughout 2023, has helped boost French electricity exports. But this effect is no longer in play.
On the aeronautics side, there is still some room to increase exports, according to INSEE. Manufacturers have not yet returned to their pre-crisis production level and “Aeronautical companies still face supply constraints” estimates Dorian Roucher, head of the economic situation department of INSEE, as shown by Airbus’s difficulties in maintaining its production rates. For 2025 and 2026, the Banque de France anticipates a new zero contribution from foreign trade to growth, with an increase in exports offset by that of imports at the same rate.
Domestic demand struggles to take over
However, few engines are ready to take over on the domestic demand side. For 2025, the Banque de France is also anticipating growth that is hardly better than in 2024, with a 1.2% increase in GDP next year, before 1.5% in 2026. Because with the probable budget cuts in the next budget, public spending is set to slow down in 2025 and 2026. However, this year, it constituted the bulk of domestic demand.
The traditional engine of household consumption remains sluggish. Despite a faster drop in inflation than expected by INSEE, “the recovery in consumption is slow in coming,” points out Dorian Roucher. At the end of December, INSEE nevertheless anticipates that price increases should fall back to 1.6%. Food consumption in the third quarter continued to decline, while households increased their savings rate to historic levels. “When households are asked how they feel about price trends, they always report that prices continue to rise.”underlines the Insee.
Food consumption surge in sight.
Alongside the decline in inflation, wages should also slow down a little faster than expected by the Banque de France, with an increase of “only” 2.7% anticipated for 2024 after 4% in 2023. Here too, hopes are limited. “The economic indicators suggest a slight improvement for the second half of the year,” according to INSEE. In the agri-food sector, in particular, manufacturers are once again reporting order books that are filling up, a sign of a possible small boost in household food consumption. Another possible supporting factor: the better performance of employment that the Banque de France anticipates next year should encourage households to be less cautious. “Less uncertainty could also lower the savings rate”says Olivier Garnier, the chief economist of the Bank of France.
There remains the recovery of business investment, which is also in deep depression. “Companies seem to be increasingly putting on the brakes,” estimates the INSEE in its latest note, which points to the lowest morale since the pandemic among manufacturers of capital goods. The drop in interest rates confirmed by the European Central Bank in September could begin to reverse the trend.
Source: www.usinenouvelle.com
