France is facing the first major wave of pushback against inflation within the European Union, even though it records the smallest price-change rate in the euro area, standing at 6.2% in September. A comparison with Spain shows that while Spain registers stronger economic growth, it also confronts higher inflation and unemployment levels.
GDP growth
France surprised observers with a 0.5% uptick in the second quarter, surpassing expectations and lifting the annual growth rate to 4.2%. France’s expansion contrasts with Spain, where growth has been more robust quarter over quarter, as the economy posted 1.1% growth in the second quarter and an annual rate of about 6.3%, compared to the pre-pandemic level. Recent projections from the Bank of Spain and Airef suggest a return to pre-pandemic levels may take longer in Spain, potentially arriving in the first half of 2024.
International organizations expect diverging trajectories. The IMF projects France to grow around 2.5% for the year and about 0.7% next year. Spain is expected to accelerate more strongly, with forecasts around 4.3% for this year and 1.2% next year, making it one of the faster-growing large euro-area economies. Airef has cautioned about a possible brief dip into negative growth in late 2022.
Inflation
France stands out in the euro area for a comparatively lower inflation rate, cooling to 6.2% in September after hitting a peak near 6.8% in July. This contrasts with the euro-area average near 10% and Spain, where the harmonized consumer price index showed a rate around 8.9% in September, still above the euro area’s average.
Several factors help explain France’s easing inflation: a relatively low dependence on gas, accounting for around 20% of final energy demand and only 7% of gas use for electricity generation (vs higher shares in Italy and Germany). Nuclear power provides roughly two‑thirds of electricity. However, Caixabank Research notes that nuclear output has not been operating at full capacity. France is also contending with drought conditions that affect cooling for aging reactors. These dynamics have pushed France to rely more on other energy sources, including imports, while the country’s exposure to Russian gas remains higher than in some peers but still below Italy and Germany.
Unemployment
Spain leads in the negative sense when looking at the labor market compared with France. Eurostat data show that France had about 2.23 million unemployed in August, representing 7.3% of the active population. Spain continues to report the highest unemployment rate in the European Union at roughly 12.4%, edging Greece at 12.2%. Youth unemployment remains a stubborn issue, with France around 16.5% and Spain about 26.5%.
Open and Debt
France finished 2021 with a deficit of 6.5% of GDP. IMF projections indicate a reduction to around 5.1% in 2022, followed by a slight rise to about 5.6% in 2023. Spain also grapples with a sizable deficit, but its path differs from France. The 2021 Spanish deficit stood near 6.9% of GDP, with forecasts suggesting a decrease to about 4.9% in 2022 and 4.4% in 2023.
Debt levels show a similar pattern. France closed 2021 with a debt ratio near 112.9% of GDP and is expected to edge down modestly in 2022 before rising again to around 112.5% in 2023. Spain is estimated to carry a higher debt load, around 118.4% in 2021, with projections of about 113.6% in 2022 and 112.0% in 2023.
Notes: IMF projections and country-specific analyses provide the background for these estimates, reflecting varying fiscal responses, energy dynamics, and structural factors across the two economies. [IMF], [Bank of Spain], [Airef], [Caixabank Research]