French Central Bank Cuts Growth Outlook as Energy Prices Hit Economy
Bank of France Revises Economic Forecasts Amid Geopolitical Tensions
Slower Economic Growth in 2024
PARIS, June 16 (Reuters) - France's economy is growing more slowly than expected after a sluggish start to the year with the Middle East conflict weighing on activity, the central bank said on Tuesday, warning the outlook was hostage to geopolitical developments.
The euro zone's second-biggest economy is set to grow 0.5% this year, the Bank of France said in its quarterly outlook, cutting its forecast from 0.9% previously.
Impact of Global Energy Prices
The downgrade reflects an unexpected 0.1% contraction in the first quarter and a spike in global energy prices since the outbreak of the Iran war at the end of February.
The central bank said its forecasts were based on oil futures as of May 21 and therefore did not take into account the latest developments in the Middle East, including a deal to halt the conflict, which has helped push oil prices to three-month lows.
Short-Term and Long-Term Economic Outlook
GDP Trends and Business Sentiment
After the first-quarter pullback in GDP, economic growth is expected to stall in the current quarter, although executives reported signs of a pickup in June compared with May, according to the Bank of France's monthly business sentiment survey of 8,500 firms.
Growth Projections Through 2028
Looking ahead, growth was expected to accelerate to 0.9% in 2027, revised up from 0.8% previously, and then reach 1.2% in 2028 as consumer spending and business investment recover.
Inflation Forecasts and Consumer Impact
Inflation is now expected to average 2.5% in 2026 before easing to 1.7% in both 2027 and 2028 on expectations that energy prices normalise. In March, the central bank had forecast inflation of 1.7% in 2026, 1.4% in 2027 and 1.6% in 2028.
High inflation is eroding households' purchasing power this year and weighing on consumption, which is expected to recover next year as price pressures ease.
Risks and Alternative Scenarios
Geopolitical Uncertainty and Economic Risks
Given heightened geopolitical uncertainty, the central bank also outlined alternative, less favourable scenarios, which pointed to weaker growth and higher inflation than its baseline.
(Reporting by Leigh Thomas; Editing by Hugh Lawson)
