It will continue to be affected by the energy crisis and inflation. French economic growth will slow sharply in 2023 and then recover over the next two years, the Banque de France predicted on Saturday.
Despite these dark clouds gathering in the aftermath of the coronavirus recovery shock and then the war in Ukraine, the economy is showing resilience: the institution is still looking to the business cycle with the three Rs — resilience, slowdown. and recovery.
Thus, gross domestic product (GDP) growth will slow sharply, from 2.6% in 2022 to 0.3% in 2023, according to the “most likely” scenario retained for the bank’s macroeconomic forecasts for the next three years.
That decline will be followed by a rebound to 1.2% in 2024 – less than previously expected +1.8%, because “winter 2023-2024 could still be a little tricky in the context of the energy crisis,” according to his management. Directed by Olivier Garnier.
“A Certain French Fortitude”
But the recovery will continue into 2025 with an expected growth of 1.8%. At this time, unemployment, which will experience a “temporary” increase of more than 8% over this period, will begin to decline.
Facing a “major external shock” from the war in Ukraine, the French economy is “demonstrating a certain resilience” and, once the 2023 air pocket passes, “adapts to this new situation,” the governor said. Banque de France François Villeroy de Gallo in an interview with the Journal du Dimanche.
However, these forecasts should be treated with some skepticism, given the “great uncertainty” affecting the French and European economies, he said. As a result, the Bank of France publishes a range of GDP growth next year from -0.3% to +0.8%.
A more optimistic government
In any case, the institution is more pessimistic than the government, which forecasts growth of 2.7% this year and 1% in 2023.
“We do not rule out a recession, but if there is a recession, it will be limited and temporary,” said Olivier Garnier. In the longer term, over the course of “2024-2028,” he added, “we are returning to growth that is in line with the potential growth of the French economy,” that is, what it can support in the long term.
If they calm down a bit, oil and gas prices will remain high and continue to fuel inflation, as will food prices, which have also risen. “But the peak of inflation should be reached in the first half of 2023,” said the Governor of the Bank of France, who predicts prices to rise to 7.3% at the end of 2022 and then decline to 4% at the end. next year and return to around 2% by the end of 2024-2025.
“Inflation, which at the beginning was mainly due to energy, has become not only higher, but also wider,” said Olivier Garnier. “In 2023, the contribution of food to average annual growth (prices) will be even stronger than the contribution of energy.”
Towards a big government deficit
To measure inflation, the Banque de France uses the harmonized consumer price index (HICP), which allows for comparison between European countries and places more weight on energy prices than the consumer consumer price index used by INSEE and the French government.
The Statistical Institute expects inflation to peak at 7% during the year in January and February before falling to 5.5% in June. In an attempt to tame the rise in prices and reach the 2% target, which is a guarantor of price stability, according to the European Central Bank (ECB), the latter on Thursday showed its determination to continue raising rates.
He expects inflation next year in the euro area at 6.3%, higher than previously thought, and growth will fall to 0.5%. Under these conditions, households will continue to suffer from a “limited fall” in their purchasing power in 2022-2023, which will then start to rise again.
First of all, public finances will suffer: according to the Bank of France, the state budget deficit will thus remain “high” – about 5% of GDP in 2022-2023 and 4.5% after that. The public debt ratio will remain at 112% of GDP until 2025.
Source: Le Parisien
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