French growth to slow sharply in 2023: central bank

THE French economy is set to slow sharply next year in the face of an energy price shock.

However, it should recover some lost ground from 2024, the central bank forecast on Saturday (Dec 17), revising down its outlook slightly.

The eurozone’s second-biggest economy is on course to slow from 2.6 per cent growth this year to only 0.3 per cent in 2023, the Bank of France said in an update of its long-term economic outlook, further trimming its 2023 forecast from 0.5 per cent previously.

However, with the outlook highly dependent on gas supplies, a recession could not be ruled out, it said, adding that growth next year could be anywhere between -0.3 per cent and 0.8 per cent.

That was lower than the 1 per cent growth forecast the government has built into its 2023 budget, a target that a finance ministry official said on Thursday it remained confident was within reach.

The central bank said that once the energy price crisis eased, growth was expected to pick up, reaching 1.2 per cent in 2024 and 1.8 per cent in 2025. Previously it had forecast a growth of 1.8 per cent in 2024.

On inflation, the central bank estimated a peak in early 2023 and an average EU-harmonised rate next year of 6.0 per cent, followed by 2.5 per cent in 2024 and 2.2 per cent in 2025.

Bank of France Governor Francois Villeroy de Galhau said the bank was ready to “go further” to tackle high inflation, “even if our objective is obviously not to trigger a recession”, according to an interview with Le Journal du Dimanche.

The European Central Bank has raised its interest rates four times, most recently by 50 basis points on Thursday as it seeks to contain surging price pressures.

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France faces higher recession risk as German downturn eases

In light of the weak growth outlook, the Bank of France forecast the budget deficit would widen from 5 per cent of economic output this year to 5.4 per cent next year. The government expects an unchanged fiscal shortfall. REUTERS