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Despite a Slightly Declining Business Climate, the French Economy Remains Resilient – Planete Business

Despite the social tensions linked to the pension reform, the business climate in France fell only slightly in March, underlining the resilience of the economy. However, the outlook for the coming quarters remains moderate.

Business climate: a modest decline

In March, the business climate in France declined modestly, from 104 in February to 103. Although this indicator remains above its long-term average, it has been relatively stable since June, fluctuating between 102 and 104. decrease in March is the result of a slight decline in business executives’ optimism about past and future activity across all sectors. Despite this, industrial order books continue to grow, while retail order intentions are down sharply.

Resilience of the economy in the face of social tensions

The business climate attests to the resilience of economic activity in France at the start of the year, exceeding expectations a few months ago. Although companies are a little less optimistic about the future, they retain some confidence despite social tensions surrounding the pension reform, which is limiting activity in certain sectors. Previous situations of social tension in France show that the economic impact is generally temporary and fully offset by a recovery in activity in the following months. Nevertheless, it is possible that social tensions reduce growth in the first quarter by 0.1 to 0.2 percentage points compared to a scenario without tensions, before an equivalent rebound in the second quarter.

Moderate economic outlook

Forecasts for the French economy over the coming quarters remain moderate. The global economic slowdown is expected to affect exports and the industrial sector. The inflationary context will continue to weigh on household consumption. Moreover, the full impact of monetary policy tightening should begin to be felt, dampening household and business investment. In this context, the impact of the recent turbulence on financial markets on the French economy remains uncertain. Even if the problems remain contained, this could lead to a tightening of credit conditions, having a slightly negative impact on economic activity in the coming quarters. In total, we expect growth of 0.7% in 2023 and 2024, after growth of 2.6% in 2022.

Business adaptation to challenges

French companies have been able to adapt to the challenges they face, in particular by diversifying their activities and innovating. In addition, they have benefited from government support measures and the European Central Bank (ECB) to overcome economic difficulties. These factors have contributed to strengthening the resilience of the French economy.

The impact of structural reforms

The French government has undertaken several structural reforms to boost the economy and improve business competitiveness. Among these reforms are the reduction of social charges for employers, the simplification of administrative procedures and the introduction of incentive measures to promote investment. These initiatives have a positive impact on the business climatethereby supporting economic growth.

The key role of SMEs in the resilience of the economy

Small and medium-sized enterprises (SMEs) play a key role in the resilience of the French economy. Indeed, they are more agile and able to adapt quickly to changes in the market. The government has put in place specific support programs for SMEs to help them overcome economic challenges, such as state-guaranteed loans and training aid. This focus on SMEs also contributes to strengthening the overall resilience of the economy.

An uncertain international environment

Despite the resilience of the French economy, the uncertain international environment and current geopolitical tensions could impact medium and long-term growth. France, like other countries, must carefully monitor developments in the global situation and be ready to adjust its economic policies accordingly to preserve its resilience.

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