Monitoring the French Economy from Space

Summary:

SpaceKnow France Nowcasting Insights help our customers track economic growth in important sectors like consumer spending, housing, and exports.

More Details:

France and the rest of the European countries have experienced challenging times since 2022. The initial COVID blow affected the country through lockdowns, put pressure on public finances, and derailed many businesses. Later, the Russian invasion of Ukraine hit France with the rest of Europe, bringing unprecedented turmoil in the energy markets. The country has had inflationary pressure like most world economies. Recently, France experienced massive strikes related to a proposed pension reform.

Spaceknow has a family of indices based on satellite imagery, specifically Synthetic Aperture Radar (SAR) measurements, monitoring the French economy. These indices can help you track some of the important elements. Below, we showcase three of our indices, that help to understand the development of the French economy.

Construction and Housing Sector:?

Figure 1 graphs SpaceKnow France Cement Storages SAI in comparison to new housing unit starts in France on a monthly basis. We believe the index can help predict French housing sector peaks and measure the general trend. Similar to our cement indices for the US, the index lows do not fully match the industry's seasonality. This is likely due to inventory management in the industry - our indices are capturing the behavior of industry response as their order books change. Our indices also capture changes in the business cycle. If demand for new housing decreases, cement storage can start filling up.

The fluctuations dominating Figure 1 are mainly seasonal. Figure 2 shows our Cement Storages SAI and Housing starts with the seasonal component removed to show a long-term relationship between the series. We can see that the index shares the same trend with France's housing starts, apart from a relatively short period that largely coincides with the COVID crisis in France. In this period, construction activity was muted, causing storage to fill.?

Retail sector:

COVID and the recent weakness of the global economy significantly impacted the retail sector. Figure 3 shows the Spaceknow France Retail SAI, which observes the area covered by cars in major shopping centers. Despite the steady rise of e-commerce, physical shopping plays an important role. Figure 3 compares this index with the volume of sales in the French retail sector. We can see the French retail sector's strong end-of-the-year performance, with the sales volume and Spaceknow index surpassing last year's result.

Trade Sector:

Spaceknow observes the major French ports and inland logistic hubs. As Figure 4 shows, this allows us to track the trend of French goods exports. While the trade balance in many European countries is heavily influenced by energy imports which can be hard to track via SAR indices, Spaceknow indices are well suited to monitor goods exports. We see that both goods exports (in euros) and the Spaceknow France Port Container SAI (measuring the volume of goods) have been on an increasing trend since the start of the pandemic. As France's inflation is still relatively low, we see no significant divergence between the Spaceknow index and the value of exports.

Our indices provide context to the underlying growth, policy and inflation issues in the French economy.?

A quick recap of the situation in France so far:

Despite the challenges posed in 2022, the French economy was surprisingly resilient . Thanks to the end of COVID measures revitalizing the service sector in combination with government policies, France achieved annual GDP growth of 2.6%. This is a surprisingly vibrant outcome, especially compared to Germany and the UK. Inflation in France averaged? 5.2%, while many of its European neighbors exceeded double-digit inflation. Other good news came from the labor market with the lowest reported number of unemployed since 2011 , and the CAC index reached an all-time high recently .

The near future, however, may not be so bright. France is expected to see very high levels of inflation in the first quarter of 2023 - led by increases in energy bills (which were limited by government policy to 4% in 2022) but will be accompanied by a further increase of 15% in 2023, hitting household bills hard. This will result in a record loss for the state-owned energy giant EDF .?

Moreover, forecasters expect the economy to slow down and the government forecast of 1% year-on-year growth will be hard to achieve. The reasons are the weakening purchasing power of French households, economic uncertainty, and weak global demand for French manufacturing products. Growth may also be affected by the series of strikes related to pension reform .

France appeared prominently in the international news due to public pushback on its proposed pension reform planning to increase the minimum retirement age from 62 to 64. This reform was meant to prevent the pension system from collapsing due to demographic pressures? but it was met with a huge wave of protests . The macroeconomic impact of the protests will likely depend on the length and intensity of the strikes , but past experiences suggest it could cost up to 0.2 percent of GDP .

We will continue to monitor the country’s economic activity in near-real time using our satellite activity indices.??

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