The drop in French morale, a bad signal for consumption


Posted Jul 27, 2022, 11:33 AMUpdated on Jul 27, 2022 at 12:55 PM

Households are brooding. Since the beginning of the year, between the Omicron variant, the outbreak of hostilities in Ukraine and the resurgence of inflation, the INSEE indicator which measures their confidence in the economic situation has continued to decline. In July, it lost another two points to fall to 80. A level well below its long-term average (100) which it had not known since the aftermath of the financial crisis.

On almost all subjects, the French show increasing pessimism. The share of those who consider that prices have increased over the past twelve months continues to progress to be “at the highest level since the summer of 2008”, according to INSEE. Faced with growing inflation, the new measures to support purchasing power promised by the executive and currently being adopted in Parliament seem to leave them unmoved for the moment.

The proportion of households anticipating an improvement in their standard of living over the next twelve months thus fell by three points this month. The mood is therefore no longer at the expense. The proportion of French people believing that it is a good time to make major purchases has fallen for the seventh consecutive month. However, the balance on the opportunity to save loses two points.

Decline in consumption

Even if the Ukrainian conflict and the energy crisis it causes have not led to a “very strong and generalized” deterioration in the situation of households according to a recent note from the Economic Analysis Council, the budget of a large part of them is under severe strain with rising inflation. Which does not bode well for consumption, the primary driver of French growth.

According to a study by Allianz Trade Report published in June, “lack of confidence will cost French consumers 20 billion euros” in 2022, or 440 euros per household. At the end of May, household spending showed a decline of 3.4% over one year.

In the second half, inflation in France should be even higher than in the first and approach 7% in September, at an annualized rate. This should continue to “moderate household purchasing decisions”, warned INSEE in its latest economic report.

This Friday, the Institute of Statistics should give the picture on the whole of the second quarter and reveal the evolution of GDP over the period. At the end of June, he predicted growth of 0.2% in the French economy between the months of April and June.

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