The French economy, between slowdown and resilience

The growth of the French economy will experience a sharp decline in speed in 2023, still affected by the energy crisis and inflation, before rebounding over the following two years, the Banque de France projected on Saturday.

Despite these dark clouds that have been gathering since the shock of the post-Covid recovery and then that of the war in Ukraine, the economy is showing resilience: the institution is still counting on an economic cycle with three “Rs”, resilience, slowdown and recovery. Thus, the increase in gross domestic product (GDP) will decelerate sharply, from 2.6% in 2022 to 0.3% in 2023, according to the “most probable” scenario retained for the bank’s macroeconomic projections for the next three years. French center. This decline will be followed by a rebound to 1.2% in 2024, less than the +1.8% previously anticipated, because “the winter of 2023-24 could still be a little complicated in the context of the energy crisis”, according to its managing director, Olivier Garnier. But the recovery will continue in 2025 with growth expected at 1.8%. At this horizon, unemployment, which would experience a “temporary” increase to more than 8% over the period, would begin to decline. Faced with “a major external shock” with the war in Ukraine, the French economy “shows a certain resilience” and, once the air pocket of 2023 has passed, “will then adapt to this new situation”, said assert the Governor of the Banque de France François Villeroy de Galhau, in an interview with the Journal du Dimanche.

“Great uncertainties” remain

However, these forecasts should be taken with a grain of salt, given the “great uncertainties” weighing on the French and European economy, he noted. As a result, the Banque de France is publishing a range for the evolution of GDP for next year of between -0.3% and +0.8%. In any case, the institution is more pessimistic than the government, which forecasts 2.7% growth for this year and 1% in 2023. “We cannot rule out a recession, but if there is a recession, it will be limited and temporary,” said Olivier Garnier. In the longer term, over “2024-28”, he added, “we are returning to growth that meets the potential growth of the French economy”, that is to say that which it can maintain. long-term. If they will calm down somewhat, oil and gas prices will remain high and will continue to fuel inflation, as will food prices, which have also soared. “But the peak of inflation should be reached during the first half of 2023”, estimates the governor of the Banque de France, the institution foreseeing a rise in prices to 7.3% at the end of 2022, before declining to 4% at the end of next year and to return to around 2% towards the end of 2024-25. “Inflation which, at the start, was mainly due to energy, has become not only higher but wider”, observed Olivier Garnier. “In 2023, the contribution of food is even stronger on the average annual increase (in prices) than that of energy”.

To measure inflation, the Banque de France uses the harmonized consumer price index (HICP), which allows comparison between European countries and gives more importance to energy prices than the consumer price index. consumption used by INSEE and the French government. The statistical institute anticipates inflation peaking at 7% over one year in January and February, then a decline to 5.5% in June. In an attempt to tame soaring prices and reach the 2% target, guarantors of price stability according to the European Central Bank (ECB), the latter showed Thursday its determination to continue its rate hikes. It is counting on inflation at 6.3% next year in the euro zone, higher than previously anticipated, and growth lowered to 0.5%. Under these conditions, households will remain hit in the wallet, with a “limited drop” in their purchasing power in 2022-2023, which would then start to rise again. Above all, public finances will take a hit: according to the Banque de France, the public deficit would thus remain “high”, around 5% of GDP in 2022-23 and 4.5% thereafter. The public debt ratio would remain at 112% of GDP until 2025.

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The French economy, between slowdown and resilience


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