January 26, 2022

Growth: INSEE expects a soft landing despite headwinds

Posted on Dec. 2021 at 18:00

Economists are like epidemiologists. With the emergence of the new Omicron variant, they integrate the idea that the page of Covid-19 will not be turned in 2022. The recovery will be “under constraint”.

This is also the title chosen by INSEE for its economic report published on Tuesday. For now, the economy is holding up well. And INSEE therefore estimates, like the Banque de France which raised its forecasts a few days ago, that growth should reach 6.7% this year.

The statistics institute still forecasts an increase of 0.5% of GDP in the last quarter of 2021. At the end of the year, activity will thus be 0.4% above its level before the health crisis, with a slightly positive contribution from foreign trade, boosted by shipments.

End of catch-up

But for INSEE, the catching-up period, after the plunge in activity of 8% last year, is well and truly over. In 2022, growth will slow down. Its projections are for GDP growth of 0.4% in the first quarter, then 0.5% over the next three months. This scenario would ensure growth at the end of June 2022 of 3%.

At this point, the government’s forecast is 4% for next year. Mathieu Plane at the OFCE shares this objective: “4% is undoubtedly a little optimistic, he admits, however. But making forecasts in the current context is a bit complicated ”. Some economists are already anticipating lower growth, around 3.5%.

The resurgence of the epidemic is creating new uncertainties. Omicron may seem less dangerous than the previous variants, but the recovery of some sectors will probably be postponed. International and business tourism, restaurants, hotels: all these activities are likely to suffer. The assumption adopted to date by INSEE is however that health restrictions will not be tightened. And according to his expectations, these are the services that will support growth next year.

Slowdown in investment

Bottlenecks continue to hamper industrial production. In some sectors, supply difficulties are reaching an unprecedented level. The automotive sector, where components are lacking, is thus running at 70% of its pre-crisis level. But the food industry is also affected, penalized by transport problems. These tensions will only resolve very slowly, according to INSEE.

This situation is already weighing on business investment. Even if it should end the year sharply up, by 12%, it has been showing signs of weakness since the summer and should only increase modestly in the first half of 2022 (+ 0.3% expected in the first quarter). This outlook has led the executive to put in place a support plan to help the industry overcome these difficulties.

Another consequence of the disorganization of value chains: manufacturing prices climbed 14% over one year at the end of October. This increase should be more and more noticeable for the end customer.

Household consumption, which is only 1% below its pre-crisis level, should remain strong, despite these price increases which will weigh on purchasing power. According to the scenario adopted by INSEE, it would finally return to its pre-Covid level by the end of the first half of 2022.