PARIS, March 24 (Reuters) - The French economy is set to maintain moderate growth in the first half of the year as higher inflation linked to the war in Iran weighs on activity, the national
French Growth Forecast Cut by INSEE Amid Inflation Rise from Iran War Impact
INSEE Revises French Economic Outlook Due to Inflation and Geopolitical Tensions
PARIS, March 24 (Reuters) - The French economy is set to maintain moderate growth in the first half of the year as higher inflation linked to the war in Iran weighs on activity, the national statistics office INSEE said on Tuesday, trimming its forecasts.
Quarterly Growth Projections Lowered
The euro zone's second-largest economy is expected to expand by 0.2% in both the first and second quarters, matching the fourth-quarter rate, INSEE said in its short-term outlook. That is down from previous projections of 0.3%.
Inflation Outlook and Contributing Factors
Impact of Iran War on Energy Markets
As the war in Iran roils global energy markets, inflation is forecast to rise above 2% in the coming months from 1.1% in February, INSEE said.
Effects on Household Purchasing Power
Higher inflation will erode household purchasing power, though price pressures will remain lower than elsewhere in the euro zone due to France's relatively modest wage growth and still-competitive services prices, it said.
Household Consumption Trends
Slowdown in Early Year Spending
Household consumption, traditionally the engine of French growth, is expected to slow at the start of the year as higher fuel prices curb spending on energy and transport-related goods, INSEE said.
Vehicle and Oil Product Purchases
Purchases of vehicles and oil products are seen falling in the first quarter, while spending on services is expected to hold up better before coming under pressure in the spring.
Business and Trade Dynamics
Business Investment and Geopolitical Uncertainty
Business investment is forecast to be broadly flat early in the year, with companies remaining cautious amid geopolitical uncertainty and weak demand, INSEE said.
Foreign Trade Impact
Foreign trade is seen weighing on growth in the first quarter as exports fall sharply due to a temporary drop in aircraft and ship deliveries.
Second Quarter Outlook
Steady Growth and Shifting Consumption Patterns
In the second quarter, growth is expected to remain steady as higher inflation begins to have a broader impact. Household consumption is seen edging up slightly as energy spending normalises, but spending on non-essential goods is expected to ease.
Investment and Export Prospects
Business investment is forecast to pick up only modestly, while public investment is likely to contract further, leaving the economy reliant on a rebound in exports to offset domestic headwinds.
(Reporting by Leigh Thomas. Editing by Mark Potter)
