French Economy Set to Decline as Olympic Boost Diminishes, According to INSEE Report by Reuters

PARIS (Reuters) – France’s economy experienced growth in the third quarter, primarily due to the influx of tourists for the Olympic Games. However, it is projected to decline by the end of the year, according to forecasts from the INSEE statistics agency.

The Paris Olympics boosted consumer spending in France, the second-largest economy in the euro zone, providing a temporary lift amidst political uncertainties following July’s hung parliament, which has caused unease among businesses.

INSEE estimates that the economy will grow by 0.4% in the third quarter, compared to a 0.2% increase in the previous quarter. This figure represents a revision from an earlier forecast of 0.5%. The agency noted that the Olympic Games are expected to contribute approximately 0.3% to this growth, primarily through ticket sales, broadcasting rights, and increased spending by tourists on accommodation and dining.

However, as the effects of the Olympics diminish, the economy is anticipated to contract by 0.1% in the final quarter of the year, resulting in an overall growth of 1.1% for the year, consistent with previous estimates from INSEE.

The economic outlook for 2024 aligns with government projections, following comments from Finance Minister Bruno Le Maire over the summer suggesting potential growth above the official 1% estimate, attributable to the impact of the Olympics.

In the political arena, after weeks of deliberation over a new prime minister, President Emmanuel Macron appointed veteran politician Michel Barnier, who faces the challenge of forming a cabinet and preparing a budget for 2025 amid a fractured post-election parliament.

The ongoing political crisis is causing uncertainty among businesses, prompting them to delay investment decisions in the context of rising interest rates. Additionally, a struggling German economy, which is France’s largest trading partner, poses further challenges for French exporters.

Despite these difficulties, lower inflation rates are expected to enhance household purchasing power, providing some relief from the anticipated decline in consumer spending after the Olympics. INSEE forecasts that inflation will remain below 2% for the remainder of the year, with an estimated rate of 1.6% by December.