2023 growth: ‘sharp slowdown’ but no ‘hard landing’, according to Banque de France

It is a gradually established destination. Every January, the Senate Finance Committee listens to the Banque de France to find out how the year will be on the economic front. An exercise that is particularly expected this year, when France’s growth can mark time and inflation continues to be high.

The international environment is darkening, with the World Bank expecting one of the weakest global growth rates in the last 30 years. This year, GDP in developed countries may increase by 0.5%. In France, 2023 should be very different from 2022, which was marked by sustained growth of 2.6%. “This year should see a sharp slowdown, but there should be a few months to avoid the feared sharp decline,” Francois said. Villeroy de Galhau, Governor of the Banque de France. With gross domestic product (GDP) growth of 0.1% in the fourth quarter of 2022, France should break out of recession after two consecutive quarters of contraction.

The Banque de France sees growth of 0.3%, not the 1% the government had predicted

In 2023, the monetary institution expects hunger growth of 0.3% before recovering to 1.2% in 2024. Although the 2023 forecast is much lower than the government’s forecast, it is not really worrying on the growth front. This year, Bercy continues to expect 1% growth in GDP.

Banque de France also contradicts the government’s principle of voluntarism in terms of employment, with the Ministry of Labor aiming for full employment at the end of the five-year period, i.e. an unemployment rate of around 5%, starting at 7.3%. right now. Banque de France services forecasts suggest a different trajectory. According to his forecasts, the level of unemployment determined by the International Labor Office will reach 7.7% at the end of 2023, 8.3% at the end of 2024, and 8.2% at the end of 2025. “It is true that growth in 2023, with very weak positive indicators, a slight increase in unemployment is expected, but it is quite limited. I do not exclude that we are a little wrong at the bottom. We have always had surprises from above”, nevertheless, he wants to assure the governor.

“So far, activity has surprised us quite positively, while inflation has surprised us negatively.”

Much of the focus has actually been on the evolution of consumer prices after years of stability or modest growth. “So far, activity has surprised us quite positively, and inflation has surprised us in a negative direction,” concludes the governor. In December, inflation was still at 5.9% year-on-year. Francois Villeroy de Galhau believes that “the level of inflation remains very high”. Inflation should peak in the first half of the year, “before falling back to 4% at the end of the year,” he predicted. »

The governor is worried about one thing. Core inflation, i.e. the evolution of prices excluding energy and food products, has not declined, unlike inflation as a whole. “Inflation has spread across goods and services,” he notes. As he promised, by 2024 or 2025, it would be enough to work together with his colleagues on the board of the European Central Bank to bring inflation to “2%”. “Inflation will be the worst enemy of confidence and therefore growth,” he insisted to senators. The concerns of the budget rapporteur Jean-Francois Husson (LR), who warned about the level of inflation from the summer of 2021, are shared among the ranks of the Commission. “Our concern team has grown significantly. seeing that there is a diffusion phenomenon,” said the senator from Meurthe-et-Moselle.

Under these circumstances, monetary policy tightening should continue. “Further rate hikes are likely to be needed at a pragmatic pace in the coming months,” he said. A rise in prime rates is “gradually and steadily” passed on to borrowing rates, particularly real estate. No worries about financing terms. In November, bank loans granted to business entities increased by 7.7%.

But the consequences of the energy crisis and rising electricity bills are causing some caution at the Banque de France. The governor notes that “cash has deteriorated, especially in industry.” “We are extremely cautious about extending payment terms from certain large companies to SMEs and VSEs. This is clearly unacceptable. »

Call for withdrawal of energy subsidies

François Villeroy de Galhau urged the government not to remain in crisis management if he accepts that the measures taken by the state are necessary to support households and economic subjects in recent months. “The state can temporarily relieve the energy shock, but it cannot eliminate it. It’s not just a bad time to be in, it’s a new economic situation that we have to adapt to with the times. »

Believing that France “can’t afford a new one at any cost,” the governor recommends the government “reduce budget subsidies to zero” for energy “within two to three years” to save space. to maneuver for investments. Another piece of advice from François Villeroy de Galhau: “Split the bill more effectively between companies and households, ensuring fairness to those most affected but to households through measures aimed at the competitiveness of our companies. According to him, regulated electricity at the beginning of the year and a 15% rise in gas prices is “going in the right direction”, along with a €100 fuel check for the modest.

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