“The drought episode is bad for French growth”

Have past episodes of heat waves and droughts in France had a significant impact on the country’s economic activity?

When looking at past episodes, the effects are limited. In fact, it is the agricultural production sector which is the first concerned and its weight in France’s economic activity is relatively moderate.

In 1976, for example, production fell by 8% in two quarters, but the impact on GDP was only 0.2 points. The sector only represented 2.3% of GDP at the time. During the drought of 1989-1990, production suffered a greater loss of 14%, which reduced GDP by 0.4%. It should also be stressed that these figures constitute a high estimate which does not take into account the indemnities or insurance which may have been paid to the producers.

Finally, regarding more recent droughts of 2017 or 2019 they had an inconspicuous economic impact, of the order of 0.1 point at most.

Will the drought that has been raging in France for several weeks nevertheless affect economic growth this year?

The current episode of drought could cost France around 0.2 point of GDP according to estimates by Allianz Trade. If so, the economy would grow around 2.3% in 2022, all other things being equal, while we anticipate 2.5% so far . The impact could be more moderate depending on the state support to affected areas. Nevertheless, this year’s episode falls badly. It certainly has consequences on agricultural production, but the sector only represents 1.3% of French GDP.

But the current drought is also affecting energy production, which accounts for less than 2% of GDP. Between the months of June and August, it has already fallen by 6%. While France traditionally exports electricity, it is in the red on this item, with electricity exports falling by more than 70% between August 2021 and August 2022.

It is very difficult to identify the effects of droughts on prices.

Since the end of 2021, the negative factors on French energy production have piled up: part of the nuclear power plants are under maintenance, Fessenheim has been closed for good, renewable energy production has been disappointing, even if it has started to rise again over the last few months. In a context of gas scarcity, this could have repercussions on the production of certain energy-intensive industries such as chemicals, metallurgy and agri-food.

France is not the only country to be confronted with drought. What impact will this have on prices?

It is very difficult to identify the effects of droughts on prices. In fact, commodity prices are determined globally. What happens locally, in France or in Europe, therefore has little impact. The impact of the current droughts is in any case marginal compared to that of geopolitical events and the war in Ukraine, which are at the origin of the explosion in food prices in recent months. French agricultural prices have thus been rising sharply for several months, for example for cereals (+72% over one year in June), due to these world events. On the other hand, the prices of fruit and vegetables, which are more affected by local conditions, are fairly stable.

The drought in several regions of the globe may nevertheless delay the inflationary peak at the global level. But in our current forecast, food inflation should start to slow early next year.