2023-12-19 17:18:24
Published on Dec 19 2023 at 3:57 p.m. Updated Dec 19 2023 at 4:18 p.m.
Keep your back rounded, hoping that the expected clearing is confirmed. For the government, the new economic forecasts from the Banque de France unveiled this Tuesday suggest some headaches in the months to come: the growth dynamic should remain hampered next year, far from the acceleration necessary to reach the budgetary objectives.
But Bercy will be able to console itself with the confirmation of a decline in inflation which should relieve purchasing power, which is never negligible politically.
Problem for the government
The Banque de France now expects growth of 0.8% this year and no longer 0.9% as in September. And activity should only grow by 0.9% next year. “It is an undeniable slowdown, but it is not the recession that we feared a year ago” after the succession of crises (Covid, Ukraine, inflation, etc.), François Villeroy stressed on France Inter de Galhau, the governor of the Bank of France.
It is certainly better than if it had been worse, but that clearly does not suit the government’s business. This is in fact counting on growth of 1.4% next year to reduce the public deficit from 4.9% of GDP in 2023 to 4.4% in 2024.
If this anemic growth were to be confirmed, Bercy will necessarily have to find additional savings to arrive at a safe budgetary point, while the examination of the 2024 finance bill has rather weighed down the boat of public spending. At this stage, the Banque de France judges, however, that this lower growth does not yet endanger the executive’s public finance trajectory for 2023 and 2024.
François Villeroy de Galhau prefers to send a positive message anyway, judging that “the fog is starting to dissipate a little”. Growth is expected to pick up from 2025, to +1.3% then +1.6% in 2026. This could be explained in particular by the decline in inflation, which is now well underway. “There is good news, it is that things are going in the right direction for inflation which was the number one concern of the French and which will be resolved,” assured the governor of the Bank of France.
Gains in purchasing power
This assumes “a commitment”: “we will reduce inflation to 2% by 2025 at the latest,” he said. The rate was 7% at the start of 2023 and should average +3.5% over the year, before falling to 2.5% on average next year. After the end of the surge in energy prices, food and manufactured prices should take over in 2024 to fuel the phenomenon, before service prices complete the trend in 2025.
This prospect should relieve Bercy, especially since the slowdown in price increases will be more pronounced than that of nominal wages. Clearly, real wages should start to grow again over the period 2024-2026 after a dark period between 2021 and 2023.
“This is good news for purchasing power,” insists François Villeroy de Galhau. French consumption is therefore expected to restart next year (+1.5% after +0.7% in 2023), which will fuel growth. Especially since the savings rate should fall, even if it would remain at a higher level than before Covid.
Unemployment on the rise
Private investment would then take over in 2025 to boost economic activity, once the effects of loosening monetary policy have been felt. The ECB must indeed start reducing its interest rates next year. But the governor of the Bank of France warned against any attempt to hasten this movement. “If we lower rates too soon, we risk a relapse in inflation,” he warned.
The last stone in the government’s shoe, this economy which is slowly emerging from periods of crisis should move away from the stated objective of full employment. The unemployment rate is expected at 7.8% in 2025, while it had reached 7.2% at the end of 2022. A further decline is not expected before 2026 (7.6%).
“Let’s stay on course for full employment. It won’t be right away with the economic slowdown, but it’s a realistic outlook for the decade,” said François Villeroy de Galhau.
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