Four factors worsening the starting point of the French economy for the period 2022-2027 – Natixis

Much attention focuses on a president’s strategy for their five years in office. But the starting point (2022) for the five years of France’s new presidential term will be unfavourable, economists at Natixis report.

An unfavourable starting point for France’s new presidential term

“The war in Ukraine has led to both a loss of growth (France’s GDP is expected to be very flat in 2022) and a sharp rise in commodity prices. Public finances in 2022 will be in a much worse state than previously expected, given the loss of tax revenues due to the loss of growth and the increase in public spending (support for purchasing power). This of course reduces the fiscal policy space for several years.”

“Wage earners’ purchasing power will fall due to the rise in inflation resulting from the rise in commodity prices. This will amplify the loss of growth and reinforce demand for government support for purchasing power at a time when public finances have deteriorated.”

“Even if companies are able to maintain their profit margins thanks to the under indexation of wages to prices, they are still hit by supply chain problems (commodities, components, transport), which curb their production.”

“Interest rates are rising much faster than expected, due to the sharp rise in commodity prices, inflation in the eurozone and the prospect of the ECB tightening its monetary policy.”