The French economy should experience a sharp slowdown in 2023, but less pronounced than expected, against a backdrop of calm inflation, the Banque de France estimated on Tuesday. After rising 2.5% last year, the gross domestic product (GDP) is expected to grow 0.7% in 2023, according to a forecast revised slightly upwards by 0.1 percentage points by the Banque de France during the presentation of its macroeconomic projections.
She attributes this slight revival of optimism to the normalization of the energy situation: prices are calming down sharply after their rise after the outbreak of the war in Ukraine, and the risk of a supply disruption is decreasing. However, this forecast remains below the 1% increase expected by the government.
1% growth in 2024
Growth would then regain momentum, but this time with less strength than previously expected, with GDP growth of 1% in 2024 and then 1.5% in 2025. A downward revision of 0.2 points in both cases. Household consumption should benefit from lower inflation, but a rise in interest rates by the European Central Bank (ECB) to curb it would weigh on investment and the global economic situation would be less favorable for French exports.
“Six months ago, the great fear was to have a recession and the installation of too high inflation. Now we have more confidence: we will gradually get out of inflation avoiding recession”, rejoiced the governor of the Banque de France, François Villeroy. de Galhau, in an interview with the newspaper the echoes. “But that will not be enough for France’s growth ambitions,” added François Villeroy de Galhau, at a time when the government is counting on savings combined with more dynamic activity in the medium term to restore public finances.
“As soon as we get out of crisis and emergency mode, we must seriously address a transformation strategy to strengthen our productive capacity, in particular the transformation of work,” he continued. While the government on Monday announced ways to save at least 10 billion euros over five years, the Banque de France warned that without changes to legislation, the public deficit would remain above 4% of GDP in 2025. and the public debt would hardly increase. decrease, close to 111%.
Inflation at 4% at the end of the year
On the inflation front, calm is increasingly taking shape. After exceeding the peak in the second quarter of this year, it seems that the fall will be more pronounced in the second half, reaching 4% at the end of the year.
However, for 2023 as a whole, the Banque de France has slightly raised its forecast for the Harmonized Index of Consumer Prices (HICP), which serves as a barometer at the European level. It should reach 5.6% during the year in France, after 5.9% in 2022, and food prices will fall less quickly than expected, according to the monetary institution.
The relaxation would be more pronounced from 2024, with a price rise limited to 2.4% and which would moderate to 1.9% in 2025, in line with the objective of the European Central Bank (ECB). “Our monetary strategy is working,” greeted François Villeroy de Galhau.
Highly sensitive to wage increases, services should replace food as the main contributor to inflation. In this context, after stagnating in 2022, purchasing power per capita should fall by 0.4% this year. It should then benefit from disinflation (+0.9% in 2024 and +0.5% in 2025), which should support household consumption after a slight fall this year (-0.1%).
Despite subdued growth, employment should continue to hold up well, with unemployment expected to rise less sharply than previously anticipated, however to the detriment of productivity. The unemployment rate would drop from 7.1% in 2023 to 7.4% in 2024 and to 7.6% the following year.
Source: BFM TV
