On the inflation front, the central bank is lowering its forecast for 2023. "There is a little more growth and a little less inflation," said the chief economist of the central bank, Olivier Garnier.

For 2023, the institution justifies the doubling of its growth 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," Economy Minister Bruno Le Maire said on BFM. And "it confirms that inflation should start to fall in mid-2023," he also said.

These positive surprises are, however, offset by the country's "financial environment", with exchange rates and borrowing rates less well oriented than in December.

Even raised, the growth forecast for 2023 remains lower than those of the OECD (0.7%, raised by 0.1 point on Friday) and the government (1%).

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.

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 François 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 Matthieu 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 stand at 5.4% on average annually in 2023, against 6% expected so far.

The HICP would then decline to 2.4% in 2024 and 1.9% in 2025, below the 2% target for by the European Central Bank (ECB).

No inflationary spiral

These forecasts of activity and inflation are nevertheless dependent 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 American and Swiss banks have indeed caused chaotic sessions on the European financial markets including the Paris Stock Exchange, investors fearing a major financial crisis.

But the governor of the Bank of France François Villeroy de Galhau reiterated Friday morning on BFM Business his confidence in the solidity of European banks, as the French Banking Federation Saturday for the banks of the Hexagon. Nor does the institution believe in a lasting effect on the economy of tensions over pension reform.

"There may be temporary effects from one quarter to the next," acknowledged Olivier Garnier, but "when we reason on the multi-year horizon (...) This is not likely to significantly affect the projection."

These risks aside, the Bank of France therefore expects a clear recovery in growth in 2024 (1.2% as anticipated in previous forecasts) and in 2025 (1.7% against 1.8%).

This take-off would be supported in particular by a revival in 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.

In terms of employment, the unemployment rate would experience a "transitory" increase in 2023 and 2024 before starting a "decline" in 2025.

© 2023 AFP