By loudly announcing that they would plunge Russia into a serious recession, Western countries have forgotten that they too were threatened by the same fate. In fact, barely a year and a half after coming out of their worst recession since World War II, the United States and certain countries of the European Union have already resumed a decline in their GDP in the first quarter of 2022: – 0.4% for Uncle Sam, – 0.2% in Italy, – 0.05% in France. And if German GDP is up 0.2% in this quarter, that’s mostly a correction from the 0.7% decline in the fourth quarter of 2021. That means German GDP is down 0.5% over the past two quarters. % has fallen.
Unfortunately, the 0.2% increase in eurozone GDP in the first quarter of 2022 cannot be extrapolated, provided that a decline of at least 0.4% is foreseeable in the second quarter of 2022. And this, in particular due to the explosion of inflationary tensions and deficits of all kinds that are breaking household purchasing power and limiting activity, without the fiscal and monetary authorities being able to reverse the trend.
And here’s where the problem lies: After two years of pandemic, a historic rise in government debt and “money pressure”, which have notably led to an inflationary rise that has continued since the early 1980s before the start of the war. was unknown in Ukraine, Western countries no longer have the patterns to cope with a prolonged phase of high inflation.
Of course governments can hand out checks, but with a government debt of almost 120% of GDP, there is little room for maneuver. Especially since, given the inflationary slippage, central banks will no longer be able to use the “money printing press” to finance government debt mismanagement. This is especially true in the Eurozone, where the single currency is depreciating enormously, automatically increasing imported inflation.
The statistics just published in France illustrate perfectly this dangerous trap we are in. In the first quarter of 2022, French GDP fell by 0.5% excluding inventories. This decline is mainly explained by the 1.3% decline in household consumption over the entire first quarter of 2022. At the same time, residential investment declined for the second consecutive quarter, declining by 1.1%, after all the last quarter decreased by 0.1%. Moreover, if he saves the furniture, business investment grew by only 0.7% in the first quarter of 2022.
The worst part is that leading indicators of economic activity are falling sharply. Starting with the Insee Household Confidence Index, which fell to its lowest point since December 2018 in April, and the “yellow vest” crisis. In this context, and as can be seen from the chart below, household consumption is expected to fall further in the second quarter of 2022, pushing French GDP to fall further for the second consecutive quarter, signaling a return to recession for our “ soft France”.
The Insee family confidence index, at its lowest point since December 2018
And this, especially as inflation continues and will continue to rise for several more months. In April, the annual change in consumer prices in France was already 4.8%, a peak since November 1985. By European standards, French inflation was even 5.4%.
Even more worrying were producer prices, the leading consumer price indicators, which rose again in March: +4.6% month-on-month and +24.4% year-on-year, a new all-time high.
As for the graph below, which illustrates the correlation between the annual shift in producer prices and that of consumer prices, the rise in the former shows that the latter, ie inflation, could soon approach 8%, which a peak since early 1984.
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Rising producer prices herald inflation close to 8% in the coming months
In other words, French inflation will continue to tighten until at least the end of the summer of 2022, putting corresponding pressure on household purchasing power, and thus on their consumption and investment spending, translating into a further decline. of GDP in the second quarter of 2022.
Especially since the rise in inflationary pressures is fueling the rise in interest rates on government bonds and thus on loans, which will again dampen household spending and business investment.
Finally, we unfortunately have to report that France has already entered a recession again. Far from the usual denial of reality over the past forty years, let’s hope this will inspire the nation’s leaders to take the right steps and engage in the “benevolent shock therapy” I’ve been asking for for years ( and which I detail in particular in my latest YouTube video). In the meantime, a little tip: fasten your seat belts!
Marc Touati, economist, president of ACDEFIA
His new book “RESET – What New World For Tomorrow?” tops the best-selling budget essays since its September 2, 2020 release
You can also find his video chronicles on his Youtube Channelthe last of which, “France is in danger: how to save it?”