After gross domestic product (GDP) growth of 2.6% in 2022, the year 2023 should be marked by a soft spot. GDP growth will decelerate sharply to 0.3%, according to the scenario ” most likely “ retained for the macroeconomic projections for the next three years published on Saturday 17 December by the Bank of France.
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”argued the Governor of the Banque de France François Villeroy de Galhau, in an interview with the Sunday newspaper.
This slowdown will be followed by a rebound to 1.2% in 2024 – less than the previously anticipated +1.8%, because “Winter 2023-24 could still be a bit complicated in the context of the energy crisis”, according to its managing director, Olivier Garnier. The recovery will continue in 2025 with growth expected at 1.8%. At this horizon, unemployment, which would increase ” temporary “ more than 8% over the period, would begin to decline.
Limited and temporary recession
However, these forecasts remain subject to great uncertainty due to the high volatility of energy prices, geopolitical tensions, especially the war in Ukraine, and the evolution of the health situation in China with Covid-19, underlines the Bank of France.
This is why it publishes for next year a range of GDP growth 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”estimated Olivier Garnier.
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. The rise in prices should amount to 7.3% at the end of 2022 and should reach a peak in H1 2023 (6% over the year as in 2022 as an annual average) before falling back to 4% at the end of next year and return to around 2% towards the end of 2024-25.
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.
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 continue to be hit in the wallet, with a “limited decline” of their purchasing power in 2022-2023, which would then rise again.
Above all, public finances will suffer the blow: according to the Banque de France, the public deficit will remain as ” raised “, around 5% of GDP in 2022-23 and 4.5% thereafter. The public debt ratio would remain at 112% of GDP until 2025.