Page 21 - economic report 2021

crept towards 3.4% in December 2021 due to
rebounding energy prices. On annual average, THE FRENCH PUBLIC DEFICIT
inflation stood at 2.1% compared with 0.5% As % of GDP Chart 2.3
in 2020. Underlying inflation, which better
reflects the trend in core prices by excluding
volatile components (unprocessed food and
energy), saw a slower trend (1.3% on annual
average and 1.9% in December).

Both the extension of the emergency support
measures due to continued health restrictions
for a large part of the year and a certain delay in
commencing the recovery plan kept the public f: European Commission forecasts (May 2022).
deficit high in 2021, at 6.5% of GDP – after Source: Eurostat.
reaching 8.9% in 2020 - an unprecedented
figure in France, according to the European In 2021, the public def cit remained high
Commission. The percentage of GDP of revenue due to cont nued support measures.
remained quite stable compared with 2020,
while the expenditure percentage fell from
61.4% to 59.2% as some special expenditure was stopped due to the pandemic, although France
is still the Eurozone country with the highest public expenditure percentage of GDP. On the other
hand, at the end of 2021, the public debt, according to the Maastricht definition, remained at very
high levels, specifically 112.6% of GDP.

19
2. Prospects

The French economy started 2022 with good economic prospects, but the outbreak of the war
in Ukraine brought a change in the macroeconomic situation with still uncertain consequences.
There are three transmission channels for the effects of the conflict on the French economy.
First, probably the most important at this stage, is rising prices of commodities and energy. The
second transmission channel is financial tensions and, more generally, the uncertainty weighing
down investment and consumption. The third channel is foreign trade. If imports of basic products
are excluded, the value of direct trade between France and Ukraine and Russia is low. However,
the price shocks from commodities will affect all economies, especially in Europe and, therefore,
foreign demand for French goods and services is expected to be affected as neighbouring
countries experience the same shock.

The economic effects of the armed conflict have already been felt. The French economy saw 0.2%
contraction in the first quarter of 2022, contrasting with the 0.4% growth in the fourth quarter
of 2021. Moreover, in June, the harmonised inflation rate climbed to 6.5%, alerting to the risk
of stagflation in the second largest economy
The French economy shrank in in the European Union. The worsening trend The external environment of the Andorran economy | II. The French economy
the f rst quarter of 2022 due in GDP in the first three months of the year
to falling private consumpt on. reflects weak household consumption, with
1.5% contraction, compared with the 0.3%
rise in the previous quarter. In contrast, total
Gross Fixed Capital Formation (GFCF) increased again (+0.6% after -0.3%), driven especially by
investment in computer services and capital goods (machine tools, computer equipment, etc.). In
total, the final domestic demand without inventories contributed negatively to the trend in GDP
by -0.6 points (after +0.2 points in the previous quarter). In the first quarter of 2022, foreign
trade continued to progress but at a slower rate. The increase in exports was more notable than