The French economy contracted unexpectedly in the first quarter as consumers struggled to cope with soaring inflation, official data showed on Tuesday, putting pressure on President Emmanuel Macron ahead of legislative elections this month.
Statistics agency INSEE said the eurozone’s second-largest economy contracted 0.2% in the three months to March from the previous quarter. He had previously estimated that the gross domestic product was stable during this period.
A breakdown of the data showed consumer spending was weaker than expected, falling 1.5% from 1.3% previously as households limited spending on new cars and hotels.
As an outbreak of the Omicron variant of COVID-19 weighed on activity earlier this year, a surge in consumer price inflation – which INSEE said hit a record 5 .8% in May – dampened household spending.
In the latest sign that inflation is worrying consumers, INSEE said households cut spending in April by 0.4%, while economists polled by Reuters had forecast an average increase of 0.8%.
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The French government has so far managed to keep inflation lower than any other EU country except Malta thanks to a €25 billion package consisting largely of caps on gas and electricity price increases.
But that hasn’t stopped dwindling purchasing power from being the top political issue in next month’s parliamentary elections that will determine whether recently re-elected President Macron has a parliamentary majority to govern for the next five years.
The Macron government has promised a new series of measures to boost purchasing power, ranging from an increase in basic pensions and civil servants’ salaries to food subsidies for the poor.
The head of France’s central bank said on Tuesday that the latest price data had only strengthened the case for exiting the European Central Bank’s exceptional monetary stimulus at its board of governors’ meeting on Tuesday. next week.
Eurozone-wide inflation hit 8.1% in May, a new record high, challenging the ECB’s view that gradual interest rate hikes from July will be enough to rein in price growth.
“The latest inflation figures for May in France and other countries confirm the rise we expected and the need for a gradual but determined normalization of monetary policy,” said the Governor of the Banque de France. , Francois Villeroy de Galhau.