Okay, here’s a rewritten and expanded version of the provided article, aiming for a minimum of 600 words, presented in Markdown format and using English. I’ve focused on elaborating on the key points and providing additional context where appropriate.
# French Economy Shows Mixed Signals: Inflation Cools, But Concerns Remain
Recent economic data from France presents a complex picture, with positive developments on the inflation front offset by concerns about economic activity and employment. The National Institute of Statistics and Economic Studies (Insee) released figures indicating a significant slowdown in inflation during February, while simultaneously confirming a contraction in economic output during the fourth quarter of 2024 and a decline in employment. These seemingly contradictory signals highlight the challenges facing the French economy as it navigates a period of uncertainty.
## Inflation Subsides More Than Anticipated
Inflation in France has decelerated more sharply than economists had predicted. In February, consumer prices rose by a mere 0.8% year-on-year, a substantial decrease from the 1.7% increase observed in January. This marks the first time in four years that the annual inflation rate has fallen below the 1% threshold. This downward trend is primarily attributed to a notable decline in energy prices, particularly electricity costs. Insee also noted a moderation in inflation related to services and manufactured goods.
A significant factor contributing to the drop in energy prices was a government-mandated decrease in electricity tariffs. As of February 1st, over 24 million subscribers to regulated electricity rates experienced an average price reduction of 15%. This is the first such decrease in a decade, providing relief to households burdened by rising energy bills.
However, not all prices are moving downwards. Food prices, for example, are exhibiting a slight acceleration compared to February of the previous year. This highlights the uneven nature of inflationary pressures within the French economy, with some sectors experiencing easing prices while others continue to face upward pressure.
On a month-on-month basis, consumer prices remained stable in February, following a 0.2% increase in January. The Harmonized Index of Consumer Prices (HICP), used for comparisons across European Union countries, showed a year-on-year increase of 0.9% in February, down from 1.8% in January. The month-on-month HICP remained stable, a slight increase from the 0.2% decrease the month prior.
The unexpected slowdown in inflation will likely be welcomed by the European Central Bank (ECB), which is closely monitoring inflation trends across the Eurozone as it considers future monetary policy decisions. Lower inflation in France could provide the ECB with greater flexibility to maintain or even lower interest rates, potentially stimulating economic growth.
## Economic Contraction in Late 2024
Despite the positive news on inflation, Insee confirmed that the French economy contracted by 0.1% in the fourth quarter of 2024. This contraction is attributed, in part, to the after-effects of the Paris Olympic Games, which had boosted economic activity in the preceding quarter. The institute explained that the decline was "partly a backlash" from the Olympics, which had temporarily supported growth.
The fourth quarter was also marked by political uncertainty, including the censure of the government of Michel Barnier after failing to secure parliamentary approval for the budget. This political instability may have contributed to a climate of caution among businesses and consumers, further dampening economic activity.
Specifically, household consumption grew at a slower pace (+0.3% after +0.6%), particularly in services. Government spending also decelerated (+0.4% after +0.6%). Investment declined slightly by 0.1%, a smaller decrease than the -0.7% seen in the summer months. The construction sector was particularly hard hit, although this was partially offset by a rebound in investment in transport equipment. Overall, domestic demand contributed positively to growth, while the contribution of foreign trade was neutral.
## Stagnant Purchasing Power and Declining Consumption
Insee also reported a slowdown in the purchasing power of French households during the fourth quarter. While gross disposable income increased slightly, driven by wage increases and social benefits, this was offset by a rise in income and wealth taxes. As a result, purchasing power per consumption unit, which takes into account household composition, stagnated after a 0.9% increase in the previous three months.
This stagnation in purchasing power is reflected in the consumption data. In January, household spending on goods fell by 0.5% in volume compared to the previous month, driven by a sharp decline in purchases of manufactured goods. In December, household consumption had increased by 0.7%.
The decline in manufactured goods consumption was particularly pronounced, falling by 2.4% after a 1.9% increase in December. In contrast, food consumption rebounded (+1.4%), while energy consumption slowed but remained positive (+0.2%).
Within manufactured goods, durable goods experienced the largest decline, falling by 3.9% in January after a 2.9% increase in December. This was mainly due to a drop in purchases of transport equipment, particularly motorcycles and new cars. Insee attributed this decline to the "backlash from the sharp increases in spending" on these items in December 2024, driven by the introduction of new regulations.
## Job Losses in the Fourth Quarter
Adding to the economic woes, Insee reported that private sector employment in France fell by 0.3% in the fourth quarter of 2024, resulting in the loss of 68,000 jobs. This was a downward revision from the initial estimate of a 0.2% decline, or 50,100 jobs lost. Public sector employment also decreased by 0.4%, with 22,100 fewer jobs, ending a string of eight consecutive quarters of growth.
The total job losses in the fourth quarter amounted to 90,100 (0.3%). While private sector employment is slightly below (-0.1%) its level from a year ago, it remains significantly above (+5.5%) its pre-pandemic level at the end of 2019, with 1.1 million jobs created since then. Public sector employment remains 3% above its pre-crisis level, representing 200,000 additional jobs.
## Conclusion: A Fragile Recovery
The French economy is currently facing a confluence of challenges, including slowing economic growth, stagnant purchasing power, and job losses. While the slowdown in inflation is a welcome development, it remains to be seen whether this will be sufficient to offset the other headwinds facing the economy. The government will need to carefully consider its policy options to support economic growth and employment while also maintaining fiscal stability. The coming months will be crucial in determining whether France can achieve a sustainable and robust economic recovery.
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