France avoided an energy supply crisis, benefiting from a mild winter, energy-saving efforts, and European measures that eased energy prices. Consequently, the country’s projected economic growth rate was adjusted to 0.6% in July 2023, a significant improvement from the contraction forecast in December 2022. Nevertheless, the projected growth remains considerably slower than the 2.5% achieved in 2022 due to elevated inflation and high borrowing costs, according to GlobalData, a leading data and analytics company.

GlobalData’s recently published PESTLE Insights report, “Macroeconomic Outlook: France,” reveals that the economic growth of France improved to 0.5% on a quarterly basis in Q2 2023, the strongest since Q4 2022, driven by a rise in net exports and fixed investments. However, household consumption expenditure continued its seventh consecutive contraction, declining by 1.4% in Q2 2023 due to higher costs of borrowing and slowing but elevated price levels.

Although inflation decreased from 6.3% in February 2023 to 4.5% in June 2023, it remained above the European Central Bank’s (ECB) 2% target. Energy prices fell, while food inflation remained high at 14.3% in June 2023. Food inflation stayed above 10% since September 2022, peaking at 16.9% in March 2023. Even the core inflation exhibited an upward trend during the same period. ECB raised its key policy rate by 25 basis points on July 27, 2023, the ninth consecutive increase effective 2 August 2023, to combat inflation.

Sector-wise, financial intermediation, real estate and business activities contributed 29.8% towards Gross Value Added (GVA), followed by wholesale, retail, and hotels activities (14.9%), and mining, manufacturing, and utilities (14.0%) in 2022, according to GlobalData. The three sectors are forecast to grow by 4.1%, 4.2%, and 4.8%, respectively, in 2023, compared to a growth rate of 4.0%, 17.6%, and 13.6%, recorded in 2022.

Puja Tiwari, Economic Research Analyst at GlobalData, comments: “High cost of financing is compounding the housing crisis in the French economy, impacting household spending and real estate investments. Many builders have postponed projects, worsening housing market challenges. In Q1 2023, only 16,912 new collective housing construction projects were initiated, the lowest since 2010, according to France’s Fédération des promoteurs immobiliers (FPI). The situation is further exacerbated by fewer building permits, rising building material costs, and stricter environmental regulations. The convergence of these factors has created a difficult situation in the French real estate sector.”

In March 2023, the French government initiated a support plan for the agri-food industry, featuring a EUR500 million ($526.9 billion) investment fund, signaling optimism for the sector. As a vital contributor to the economy, the plan aims to bolster the industry’s growth, enhance sustainability, and create more profitable food production practices.

Meanwhile, France is poised to become the world’s top tourist destination, predicted to welcome 93.7 million international visitors by 2025, as per GlobalData. With 66.6 million visitors in 2022, it is on track to regain its title, projecting a 12.1% annual growth in arrivals from 2022 to 2025.

France is categorized as one of the very low-risk nations and ranked 27th out of 153 nations in GlobalData Country Risk Index (GCRI Q1 2023). The country’s risk score is lower in various parameters, including macroeconomic, political, and legal, compared to the average of the West European nations in Q1 2023.

Tiwari concludes: “Despite the challenges over elevated prices and subdued economic growth projections, France is witnessing positive developments in certain industries. Efforts to support the agri-food sector and the country’s popularity as a tourist destination are boosting optimism. While the housing crisis persists, the overall risk index remains favorable, positioning France as a relatively stable and attractive nation for investors.”