Europe 1 with AFP 12:01 p.m., March 20, 2023

According to its projections, the Bank of France estimates on Monday that product prices should grow less quickly "towards the end of the first half". It also expects GDP growth of 0.6% for the year, against 0.3% previously envisaged. The Minister of the Economy, Bruno Le Maire, also believes that the French economy is doing well.

Renewed optimism at the Bank of France: in its latest forecasts, the institution doubled on Monday its growth forecast in France for 2023 and now expects an increase of 0.6% in gross domestic product (GDP), against 0.3% envisaged until then. On the inflation front, the central bank is lowering its forecast for 2023.

>> READ ALSO - UBS Bank to buy Credit Suisse, announces Swiss President

"The French economy is doing well"

With regard to growth, the institution justifies the doubling of its forecast by inflation (especially energy) lower than expected, and "higher growth in global demand". "The French economy is doing well, the Bank of France has just raised its growth forecast, it is approaching that of the government" (1% in 2023), said Economy Minister Bruno Le Maire on RMC/BFM TV.

These positive surprises are, however, offset by the country's "financial environment", with exchange rates and borrowing rates less well oriented than in December. Another lesson: while food inflation has taken over from energy inflation as the main driver of price increases, it should reach its peak "towards the end of the first half", according to Matthieu Lemoine, one of the authors of the 2023-2025 macroeconomic projections published Monday.

Prices would rise more slowly

However, there should not be "a red month" even if "there is obviously a point of attention and there is a period of high food prices that is very sensitive for our fellow citizens," said Fran├žois Villeroy de Galhau, governor of the Bank of France on France inter. Prices would then rise more slowly, thanks to "the planned easing on the price of agricultural inputs (...) and international prices of agricultural raw materials," the institution said. But "we do not expect a decrease in food prices on the horizon of our projection", that is to say 2025, warns Mr. Lemoine.

All goods and services included, the Harmonised Index of Consumer Prices (HICP) - the inflation barometer that refers to the European level and that the Bank of France uses in its projections would increase by 5.4% on average annually in 2023, against 6% expected so far. HICP inflation would then decline to 2.4% in 2024 and 1.9% in 2025, falling below the 2% target for by the European Central Bank (ECB).

>> READ ALSO - Bankruptcy of the SVB: faced with the risk of financial crisis, French banks better equipped than in 2008

No inflationary spiral

These forecasts of activity and inflation nevertheless depend on "many uncertainties". "The indirect effects of the recent banking and financial volatility should be closely monitored, as recalled by the recent events caused by the closure of Silicon Valley Bank in the United States or the uncertainty surrounding Credit Suisse," she said.

The difficulties of the US and Swiss banks have created great volatility in the markets, as investors fear a major financial crisis. But the acquisition of Credit Suisse by UBS, announced Sunday evening, is "a good agreement" and French banks are "solid" and "tested regularly", tried to reassure Monday Bruno Le Maire.

As for the impact of the current tensions around the pension reform in France, "there may be temporary effects from one quarter to the next," acknowledged the chief economist of the Bank of France Olivier Garnier, but "when we reason on the multi-year horizon it is not likely to significantly affect the projection". Economists at the credit insurer Allianz Trade are more suspicious and on Monday estimated at 0.3 points of GDP in 2023, "or about eight billion euros", the cost of prolonged strikes against the pension reform.

The Bank of France expects a sharp recovery in growth in 2024

These risks aside, the Bank of France is therefore counting on a clear recovery in growth in 2024 (1.2% as expected in previous forecasts) and in 2025 (1.7% against 1.8%). This take-off would be supported in particular by household consumption (+1.5% in 2024 and +1.6% in 2025), whose remuneration is expected to grow more dynamically than in recent years.

The average wage per capita, which includes overtime and bonuses, is expected to grow by 6% in 2023, 4.6% in 2024 and 3.7% in 2025, without purchasing power jumping in the same proportions. "This increase in wages should not lead to an inflationary spiral," said the Bank of France.