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French growth to slow to 0.3 pct in 2023: central bank

French economic growth will slow considerably in 2023 due to the energy crisis and inflation, before bouncing back in 2024 and 2025, the central bank forecast on Saturday.

Published: 18 December 2022 08:59 CET

This file photo taken on May 18, 2016 shows the logo of the Banque de France on its building in Paris. The Banque de France announced on December 16, 2022 that growth was expected to slow to 0.3% in 2023. Photo: PHILIPPE LOPEZ / AFP

GDP growth will slow from 2.6 percent in 2022 to 0.3 percent in 2023, according to the Bank of France’s “most probable” macroeconomic scenario for the next three years.

The slowdown in growth will be followed by a 1.2-percent rebound in 2024.

That is lower than the 1.8 percent previously anticipated, because “the winter of 2023-24 could still be a bit complicated due to the energy crisis”, director-general Olivier Garnier said.

The rebound will continue in 2025, when growth is expected to reach 1.8 percent, the bank said.

The forecasts remain highly uncertain though.

This is because of extremely volatile energy prices, geopolitical tensions — particularly the war in Ukraine — and uncertainty as to the evolution of Covid-19 in China.

The Bank of France’s outlook is less optimistic than that of the government, which forecasts 2.7 percent growth in 2022 and 1.0 percent in 2023.

“We can’t rule out a recession but if there is one it will be limited and short-lived,” Garnier said.

Oil and gas prices are expected to fall back from the peaks seen this year but remain high and continue to feed inflation, as will food prices.

Prices will have risen 7.3 percent by the end of 2022.

Inflation will continue to rise in the first half of 2023 before dropping back to 4.0 percent by end-2023 and 2.0 percent at end-2024, the BdF said.

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France and Italy face spending rebuke from EU

The rebuke comes at a particularly difficult moment for France, where both the far left and far right are piling up spending promises ahead of snap polls triggered by President Emmanuel Macron’s crushing EU election defeat.

This will be the first time Brussels has reprimanded nations since the EU suspended the rules because of the 2020 Covid pandemic and the energy crisis triggered by Russia’s invasion of Ukraine, as states propped up businesses and households with public money.

The EU spent two years during the suspension overhauling budget rules to make them more workable and give greater leeway for investment in critical areas, like defence.

But two sacred goals remain: a state’s debt must not go higher than 60 percent of national output, with a public deficit – the shortfall between government revenue and spending – of no more than three percent.

The European Commission will publish assessments of the 27 EU states’ budgets and economies on Wednesday, and is expected to point out that some 10 countries including Belgium, France and Italy, have deficits higher than three percent.

The EU’s executive arm has threatened to launch excessive deficit procedures, which kickstart a process forcing a debt-overloaded country to negotiate a plan with Brussels to get back on track.

Such a move would need approval by EU finance ministers in July.

Countries failing to remedy the situation can in theory be hit with fines of 0.1 percent of gross domestic product (GDP) a year, until action is taken to address the violation.

In practice, though, the commission has never gone as far as levying fines, fearing it could trigger unintended political consequences and hurt a state’s economy.

The EU countries with the highest deficit-to-GDP ratios last year were Italy (7.4 percent), Hungary (6.7 percent), Romania (6.6 percent), France (5.5 percent) and Poland (5.1 percent).

They may face the excessive deficit procedures, alongside Slovakia, Malta and Belgium, which also have deficits above three percent, according to Andreas Eisl, expert at the Jacques Delors Institute.

The picture is complicated for three other countries, Eisl said. Spain and the Czech Republic exceeded the three percent limit in 2023 but should be back in line this year.

Meanwhile, Estonia’s deficit-to-GDP ratio is above three percent – but its debt is around 20 percent of GDP, significantly below the 60 percent limit.

The commission will look at the states’ data in 2023 but “will also take into account the developments expected for 2024 and beyond”, the expert told AFP.

Member states must send their multi-annual spending plans by October for the EU to scrutinise and the commission will then publish its recommendations in November.

Under the new rules, countries with an excessive deficit must reduce it by 0.5 points each year, which would require a massive undertaking at a moment when states need to pour money into the green and digital transition, as well as defence.

Adopted in 1997 ahead of the arrival of the single currency in 1999, the rules known as the Stability and Growth Pact seek to prevent lax budgetary policies, a concern of Germany, by setting the strict goal of balanced accounts.

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