In H1 2022, the global economy bears the imprint of a succession of exogenous shocks. With the Omicron wave, Covid-19 again affected economic functioning – only slightly in Europe, but much more markedly in China given its “zero-Covid” strategy. The war in Ukraine has heightened energy and food supply chain difficulties as well as geopolitical uncertainty. Overall, these two shocks, although very different in nature, have amplified inflationary pressures and once again global value chains have been put to the test, despite being already under pressure at the end of the most intense phase of the health crisis.

This difficult context poses new challenges for economic policies. During the pandemic, fiscal and monetary support was huge, contributing to a rapid exit from the crisis. The very sharp rise in inflation around the world is now leading to monetary tightening that is likely to affect behaviour, as shown by the concerns expressed by the financial markets. Fiscal policies, for their part, are attempting to curb the impact of inflation through measures aimed at limiting prices or supporting incomes directly.

From its standstill in the spring, world trade could rebound in H2, driven mainly by a recovery in Chinese activity. The US economy will probably still be driven by domestic demand, despite the expected slowdown in an inflationary context which looks set to stabilise at a high level. Finally, European countries are more exposed than the United States to the shock of the war in Ukraine, especially given their energy imports, but they undoubtedly have a greater potential for catch-up. Growth here is likely to be positive but moderate by the end of 2022.

However, this global scenario would be put to the test in the event of, say, a complete interruption in the supply of Russian energy products to Europe, more lockdowns in China resulting in lasting disruptions in value chains, or a sharper slowdown in American activity.

In May 2022, the annual change in consumer prices reached 5.2% year-on-year in France, a level not seen since 1985, but still lower than in the other main Eurozone economies. There are several factors that may combine to account for these differences between countries: these include the structure of household consumption, price-setting conditions (especially energy) and recent measures to control inflation. The year-on-year change in electricity prices thus appears to be much better contained in France, where the “tariff shield” on regulated gas and electricity sales tariffs together with the fuel price rebate brought down headline inflation by about 2 percentage points in May.

Assuming that this tariff shield is maintained until the end of the year, that the fuel price rebate is brought down gradually between September and December and that the price of Brent is €111/barrel, energy inflation could ease gradually by the end of the year. Its contribution to headline inflation would still be above 2 percentage points in December, but it would no longer be the main contributor. It is likely that services will take over, given their weight in household consumption (almost 50%), while the prices of food and manufactured products are also expected to continue to accelerate in reaction to earlier increases in production costs. All in all, headline inflation should continue to increase this summer, then stabilise in the autumn between 6.5 and 7% year-on-year (and around 4.5% for core inflation). As an annual average, inflation is expected to be +5.5% in 2022 (after +1.6% in 2021).

Inflation figures are usually published as an average for the entire population. However, every year in January INSEE also publishes indices by household category, as consumption structures can differ from one household to another. It seemed appropriate to update this index at a slightly higher frequency in this Economic Outlook. Some much larger differences than usual do indeed emerge as a result of the sharp rise in energy prices. In April 2022, for example, this simulation suggests that households living in rural areas were exposed to an inflation rate that was about one percentage point higher than the overall average.

Our inflation forecast is expected to lead to another automatic increase in the minimum wage either during the summer or at the beginning of the autumn period. The Livret A savings book interest rate could also increase this summer. Alongside these automatic increases and price limitation measures, household purchasing power, which fell substantially in Q1 2022 and is likely to decline further in Q2, could pick up in H2 thanks to the buoyancy of payroll and additional income support measures.

The forecast for household income presented in this Economic Outlook was produced based on available public announcements on purchasing power support measures. This is not a prediction of any specific measures that will ultimately be introduced, the terms of which are likely to change before they are actually implemented. These measures may concern wages (renewal and increase in the ceiling for the extraordinary purchasing power bonus, increase in the civil service index point), social benefits (increase in retirement pensions, minimum social benefits, family allowances, activity bonus and targeted aid measures for fuel and food expenses), as well as taxes and social contributions (notably the abolition of the television and radio licence fee). Taken together, these measures are expected to contribute to raising households’ gross disposable income (GDI) by about 1 percentage point in 2022.

Payroll is also likely to be supported both by the dynamism of wages, mainly due to wage agreements in various sectors, and by the relatively good performance of employment. This is certainly expected to slow in 2022 (+200,000 net job creations forecast after +855,000 in 2021) but this should at least allow the unemployment rate to continue to fall slightly (7.0% forecast for the end of 2022).

Taking into account the trend in consumer prices, the purchasing power of household GDI should pick up sharply in H2, but is expected to decline as an average over the whole of 2022 (–0.6% forecast, i.e. –1% per consumption unit).

The decline in purchasing power contributed to the sharp fall in household consumption in Q1. However, this consumption could rebound moderately in Q2, mainly as a result of a catch-up effect in those services most affected by the pandemic during the winter, while the consumption of goods is likely to slip back. In H2, the context of very high inflation and uncertainty is likely to affect household purchasing decisions and encourage precautionary savings. Households are also likely to smooth the effect that quarterly fluctuations in their purchasing power have on their consumption. All in all, with a moderate increase in consumption in H2, the savings ratio should remain at 16.3% in 2022, quite significantly higher than its level before the health crisis (15.0% in 2019).

Regarding companies’ margin rate, this peaked during the health crisis mainly due to support measures. The decline forecast for 2022 began for the most part during 2021. It resulted both from the deterioration in the terms of trade and the fact that emergency aid associated with the pandemic came to an end. The margin rate is expected to stand at 31.7% in 2022, a similar level to that of 2018. Despite this fall in margin rate, corporate investment, which has already clearly exceeded its pre-health crisis level, looks set to be relatively resistant. However, after a slight acceleration in the spring, it could then slow down given the uncertainties. Meanwhile, exports still show potential for catch-up; however, they are likely to be at a standstill in the spring before picking up in H2 with the expected rebound in world trade.

In addition, given the lacklustre results from the business tendency surveys carried out in June, quarterly growth looks set to be moderate: +0.2% forecast in Q2, then +0.3% in Q3 and Q4. This rate of growth would be below that expected in a recovery phase, but not very different from the average recorded during the decade that preceded the health crisis. At the end of 2022, French GDP is expected to be 1.2% above its level at the end of 2019. Annual growth is expected to be 2.3% in 2022 (after +6.8% in 2021).

Alongside the international risks already mentioned, which undoubtedly constitute the main uncertainties in the forecast, there are other factors that may influence it. Household consumption behaviour, for example, remains difficult to predict precisely in this context of high inflation. If there were a drop in the savings ratio, this could make domestic demand a little more dynamic. Conversely, household confidence currently appears to be weakened, and, in contrast to previous presidential elections, it has not seen any improvement as a result of the April 2022 elections. Finally, the recent results of the legislative elections in France are adding to the uncertainty.