Net sales

French growth is holding up, but the Ukrainian crisis is shaking consumer confidence (INSEE)

French economic growth is holding up for now despite the energy price shock linked to the Ukraine crisis, but business and consumer confidence is falling rapidly, INSEE said the official statistics agency.

The eurozone’s second-largest economy is on track to grow 0.3% this quarter, down from 0.7% in the fourth quarter but unchanged from a previous estimate last month, INSEE said.

A decline in consumer spending would be offset by business investment, government spending on COVID testing and vaccinations and businesses replenishing depleted inventory, INSEE said in its economic outlook.

Increase in energy prices

Although limited so far, the economic impact of the Ukrainian crisis could weigh more in the future, in particular due to energy prices.

If energy prices remain at the high levels seen in early March for the rest of the year, the French economy would lose around one point of growth, estimates INSEE.

The agency said early results from its monthly business confidence survey showed a sharp deterioration, particularly in the manufacturing, wholesale and retail sectors.

Faced with high energy prices, executives expect a sharp increase in price pressures – with the exception of the services sector.

Consumer Trust Expectations

At the same time, the first results of the INSEE’s monthly consumer confidence survey also show that households are expecting a sharp drop in the standard of living and a sharp rise in inflation expectations.

INSEE estimated that French inflation would rise from 3.6% in February to 4.2% in March and could reach 4.5% during the second quarter. Food prices were 1% more in Februaryhe noted.

Faced with soaring energy prices, the government has capped increases in gas and electricity prices, without which inflation would have exceeded 5% in February, calculated INSEE.

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