France's political uncertainty hitting confidence and growth, Villeroy says

PARIS (Reuters) -France's political uncertainty is costing the country at least 0.2 percentage points of economic growth and risks further sapping business and consumer confidence, central bank chief Francois Villeroy de Galhau said on Friday.

While he warned that the markets would be scrutinising the situation, he told RTL radio the economy remained stable.

President Emmanuel Macron is expected to name his sixth prime minister in under two years on Friday, aiming to end the euro zone's second-largest economy's worst political crisis in decades.

'THE ECONOMY IS HOLDING UP'

"National uncertainty is costing us at least 0.2 percentage points of growth," Villeroy said.

"Uncertainty is the opposite of confidence and therefore the number one enemy of growth ... Households save more when they are worried, so they consume less. Businesses wait to invest."

Commenting on the Bank of France's monthly economic survey released on Thursday, Villeroy said: "If I had to sum it up, I think morale isn't very high because we're all fed up with this political mess, but the economy is holding up ... thanks to the courage of entrepreneurs and the hard work of French people."

Villeroy said that France must reduce its rising debt and it would be better if its public deficit did not exceed 4.8% of gross domestic product in 2026.

Outgoing French Prime Minister Sebastien Lecornu said late last month he was aiming for a budget deficit of around 4.7% of GDP in 2026, down from a forecast 5.4% this year.

"The target is 3% (of GDP) in 2029, that is a commitment we have made to Europe," Villeroy said, adding "the whole of Europe is watching us" and warning that "investors can punish us on the markets".

"We have four years to reduce the deficit by 2.4%. We need to cover a quarter of that distance in the first year. We need to reduce it by at least 0.6. So I believe it would be desirable for the deficit not to exceed 4.8% in 2026," he added.

Asked if he had been contacted to take a position in the next French cabinet, Villeroy said: "My mission is at the Bank of France to serve the country."

(Reporting by Makini Brice and Dominique Vidalon; Editing by Kim Coghill and Alison Williams)