Disruption to global supply chains and logistics as the Covid pandemic abated and disorder on global agricultural and energy markets after war broke out in Ukraine upset the economic cycle against the backdrop of an across-the-board surge in inflation.  

These supply shocks have gradually subsided, with a bump in inflation followed by a downward trend as energy prices have fallen and food prices have stopped rising. However, the nature of obstacles to production has gradually changed. Economic activity stagnated throughout the second half of last year, hampered not by supply constraints but now by a perceived shortfall in demand, penalised by the past inflationary shock and monetary tightening. 

This year, as disinflation continues and wages belatedly catch up, purchasing power and consumer spending – which will be the main drivers of growth – should pick up. However, not until the second half of the year and the first European Central Bank rate cuts will the investment horizon become clearer. Lacking drivers, growth is likely to come in at a paltry 0.7% in the eurozone and 1% in France.

The economic climate will continue to vary from sector to sector. Energy-intensive industries will continue to digest the energy shock and the ensuing persistent loss of competitiveness. As supply chain pressures gradually ease, some sectors such as automotive and aerospace are seeing production return to more normal levels and continue to offer some upside. Meanwhile, industrials and food retail still have to reckon with changing consumer habits: with consumers still worried about purchasing power, non-priority purchases could be deferred or shifted to cheaper retailers and/or product ranges. On the other hand, the tourist season – particularly in France, with the Olympics looming – looks promising. Lastly, the construction sector will struggle to get back on an even keel until interest rates and prices come down, enabling the property market to stabilise. 

This scenario of a soft recovery remains entirely dependent on political and geopolitical risks and turbulence. In addition to the hotspots of Ukraine, the Middle East and the South China Sea, this year brings an exceptionally busy electoral calendar, with elections set to be held all over the world, culminating in the US election in November.