Barely recovered from the pandemic of Covid-19, the French economy will be penalized by the war in Ukraine which should slow growth while accelerating the rise in prices, the Banque de France said on Sunday.
Inflation will stay “high throughout 2022”, reaching according to two distinct scenarios 3.7% or 4.4%. High inflation will be fueled by energy prices but also those of food whose rate of increase “should increase significantly in the coming months”, according to the central bank. It had risen to 4.1% over one year in France in February but should, according to forecasts made before the war, return to around 2% before the end of 2022.
Olivier Garnier, Director General of the Banque de France, recalled that inflation was rising on average at 5.8% in the euro zone and estimated that that of France would be as high without the tariff shield put in place by the government on gas and electricity prices.
The central bank now expects inflation to decline to 1.9% in 2023 and then to 1.7% in 2024 in the conventional scenario, but remain high at 3.3% next year before to fall to 1.5% in 2024 in the scenario based on durably very high energy prices.
Growth takes a hit too
The French growth should also be cut in 2022 by 0.5 to 1.1 percentage point compared to what would have happened without the conflict, estimates the institution. The French gross domestic product (GDP) will progress by 3.4% if the price of oil averages over the year at 93 dollars, but by only 2.8% if this price reaches 119 dollars. Without the war, growth would have been 3.9%, estimate central bank economists.
The director general of the Banque de France Olivier Garnier specified during a press conference that the two scenarios were “possible”adding that he was unable “to say which is the most probable” and that there could be others. The Banque de France has thus not calculated the effect that a halt in Russian gas and oil supplies would have.
Industry hardest hit
The brake stroke occurs when “we had not yet found our potential growth trajectory” before the health crisis, underlined Mr. Garnier. “The shock overall is less strong than during the first confinement of the year 2020 but it is part of a longer duration”explained Matthieu Lemoine, economist of the central bank.
“With the Covid, it was the services that had been affected; this time it was more the industry. Before the war, it already had supply difficulties, which should gradually dissipate this year. In the short term , unfortunately we are not going to see this improvement”estimated in an interview with Parisian the governor of the Banque de France, François Villeroy de Galhau.
The negative shocks on the French economy of the conflict are in total of three orders, concludes the Bank of France: increase in the prices of energy and raw materials, reduction of consumption and investment, as well as a reduction of the request addressed to France which will affect foreign tradefurther indicates the Banque de France.