With zero economic growth in the first quarter and accelerating inflation, the risk of stagflation hangs over France. A sudden halt. With zero growth (0%), the French economy stalled in the first quarter, according to INSEE. Main culprit: the fall in household consumption of 1.7% over the first three months of the year against a backdrop of inflation and war in Ukraine. Inflation which also continued to rise in April, to +4.8% over one year, after +3.6% in February and +4.5% in March. A level that those under 40 have never experienced. Zero growth and high inflation: all the elements are now in place to see the specter of stagflation reappear. This phenomenon – contraction of “stagnation” and “inflation” – is indeed characterized by a regime of low or even zero growth coupled with a significant and generalized rise in prices. That is precisely the table for the first quarter drawn up by INSEE. Household morale at half mast If it takes the trajectory, it is nevertheless a little early to say with certainty that the French economy will enter a period of stagflation such as she knew her in the 1970s and 1980s. This would require confirmation of the economic slowdown in the first quarter: With the Omicron variant of Covid-19, “we had a very particular first quarter, constrained in spending (…). If we have confirmation that the household consumption fell again in the second quarter as it did in the first, there we can probably be alarmed”, explains Denis Ferrand, CEO of Rexecode. This is all the more true since household consumption is deemed to be the main engine of economic growth in France. The publication on Wednesday of the survey on household morale in April is however not reassuring: at 88 points, it reached “a level close to the low points reached at the end of 2018 during the movement of yellow vests and in 2020 during confinements. “ noted INSEE. A 2.4% growth gain Conversely, certain indicators show a relative resistance of economic activity in the face of the threat of short-term stagflation. Starting with business investment which, if it slows down, rose by 0.2% in the first quarter. Foreign trade continues to recover, although at a less sustained pace than in the previous quarter, with an increase in exports of 1.5% of exports, and an increase in imports of 1.1%. growth for France reaches 2.4% in 2022, according to INSEE. In other words, if the GDP remained stable during the second, third and fourth quarters, the tricolor growth would be 2.4% over the whole year. Far from the 4% hoped for by the government of course, but not either the sluggish growth specific to periods of stagflation. The risk would therefore mainly relate to the year 2023. Inflation is accelerating in food Even if growth remains at an acceptable level, inflation should remain high in the coming months. Especially since after energy, it is food products that have seen their prices rise seriously in recent weeks (+3.8% over one year in April). Hence household morale at half mast. This increase reflects the application of contracts concluded between distributors and manufacturers in the context of trade negotiations. And the trend should continue as negotiations have been reopened by the government to take into account the consequences of the war in Ukraine on production costs. However, unlike the stagflation of the 1970s and 1980s, it There is currently no massive wage increase in France. In any case, not at the level of inflation. This rules out at this stage the risk of triggering a price-wage loop which would only fuel the general rise in prices. What is the ECB going to do? The European Central Bank, which has always refused to raise its rates until of course will have a role to play in the coming months. For the Frankfurt institution, the dilemma remains the same: raise rates at the risk of slowing down the economic recovery or doing nothing at the risk of allowing inflation to run. “With an appropriate policy response, we can mitigate the economic consequences of the war in Ukraine and managing the high levels of uncertainty we are facing,” said ECB President Christine Lagarde at the end of March, saying that stagflation, which she defines as “a recession of the economy on a lasting basis and high inflation, which continues to rise” could be avoided. but probably in a very gradual way. Otherwise, the threat of stagflation could give way to an even greater risk in 2023: that of “decline inflation”, a combination of high inflation and a recession.