French central bank ups 2023 growth outlook, trims those of 2024, 2025

The French economy should gradually overcome inflation without slipping into recession, even though an unfavourable international environment may weaken the recovery, the bank said.

After peaking early this year, headline inflation should continue to subside, falling to 4.5 per cent in the fourth quarter.

The new increases in energy prices in the summer of 2023 are different to those witnessed in 2022 and, based on current market expectations, they should only be temporary.

Aside from possible jolts to the most volatile components, inflation is expected to fall markedly right across our projection horizon.

Provided there are no new shocks to commodity import prices, headline inflation should come back to around 2 per cent in 2025.

The bank forecast a moderate fall in employment, reflecting the delay in adjusting to the economic slowdown observed since late 2022. Consequently, the unemployment rate is projected to gradually increase over the horizon to reach 7.8 per cent in 2025, which is actually below the pre-pandemic rate.

Over 2023 as a whole, year-on-year headline inflation is predicted to gradually decline from 7 per cent in the first quarter to 4.5 per cent in the fourth. This also goes for year-on-year inflation excluding energy and food, which is forecast to fall from 4.4 per cent to 3.7 per cent over the same period.

In annual average terms, headline inflation this year is forecast at 5.8 per cent, while inflation excluding energy and food should be 4.2 per cent. This latter figure has been revised downwards compared with our June projection (4.4 per cent).

Manufactured goods inflation should also moderate rapidly beginning in the second half this year, reflecting the marked drop in industrial producer prices that began in the first quarter on the back of falling import prices.

In 2024, all components of inflation should fall. In 2025, headline inflation and inflation excluding energy and food should continue to decline, reaching 1.8 per cent and 2.1 per cent respectively in annual average terms.

ALCHEMPro News Desk (DS)