Au premier trimestre, les ménages ont réduit leur consommation (-1,5 %) du fait de l'inflation.

Purchasing power could see its second biggest drop in 30 years in 2022

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For months, purchasing power has been at the top of the priorities of the French in the polls and this trend is obviously not about to be reversed. Purchasing power could experience its second biggest drop this year in thirty years since the great fiscal shock of 2012-2013, if we are to believe the economic forecasts for France in 2022 published this Thursday by the Observatory. French Economic Conjunctures (OFCE).

Thus the OFCE expects this indicator “to contract by an average of 0.8% for French households, despite the measures taken by the government, including the recently announced 4% increase in pensions”, says economist Mathieu Plane, who led the research center’s study. Since 1990, only during the years 2012-2013 – with the fiscal shocks carried out under Nicolas Sarkozy and then François Hollande – has the decline been greater, greater than 1%. During the health crisis, the “whatever the cost” had anesthetized the effects of the sudden cessation of activity.

Consumption at half mast

This situation results, of course, from the surge in inflation observed for almost a year and fueled by the war in Ukraine. The OFCE expects this to reach 4.9% on average over the year, with even a price increase of 22% for energy products alone. “Without the specific measures taken by the government (tariff shield, 15-cent discount on fuel, etc.), inflation would have been 7%,” specifies Mathieu Plane.

For the OFCE, it is therefore to be expected that “this contraction in purchasing power will weigh on the dynamics of recovery through the weak dynamics of household consumption in the absence of a reduction in the savings rate in a context marked by strong geopolitical uncertainties”.

In fact, in the first quarter, households reduced their consumption (-1.5%) and if this should increase by 2.5% in 2022 on average, the rate would be 0% year-on-year at the end of year. The French also have little chance of drawing too much on their woolen stockings: the savings rate could reach 16.7% in 2022, “i.e. 2 points above the pre-crisis level while savings generally acts as a shock absorber during crises,” points out Mathieu Plane.

Return to full employment compromised

In this context, the OFCE is counting on growth of 2.4% this year (against 2.7% a few weeks ago, to take into account the deterioration of the growth acquis recently carried out by INSEE). A slowdown which should stem the improvement observed on the employment front for several months with an unemployment rate expected to remain stable at 7.3% at the end of the year and employment growth of 0.6% . “The objective of a return to full employment will be difficult, we have eaten our white bread”, estimates Eric Heyer, director at the OFCE.

Logically, this darkening of the outlook will have consequences for public finances. The deficit is thus expected at 5.6% of GDP, against 5% initially forecast. The OFCE has assessed the resilience plan (inflation allowance, 15 cents rebate, tariff shield, etc.) already presented at 1.3 points of GDP, and estimates that the future bill on purchasing power (food voucher , indexation of social benefits, increase in the index point for civil servants expected to 2 points, etc.) could represent 0.4 point of GDP. This complicates the budget equation.

“Envisaging structural tax cuts does not seem to be an absolute priority as long as the uncertainties about growth are not lifted”, warns Xavier Ragot, president of the OFCE.

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