The Banque de France considers a recession possible in 2023

Posted Sep 15, 2022, 8:00 PM

After Bercy, which has just revised its growth target for 2023 downwards and only expects 1%, the Banque de France, in turn, delivered its new macroeconomic projections on Thursday. For once, it has chosen to retain a range of forecasts given the high level of uncertainty linked to the war in Ukraine and the energy crisis it is causing.

Thus, according to its latest estimates, France’s GDP in 2023 could oscillate between an increase of 0.8% and a decline of 0.5%, after an estimated increase of 2.6% this year. Inflation would be between 4.2% and 6.9% next year, measured by the harmonized HICP index.

A “difficult” year

In any case, the Central Bank therefore expects a more pessimistic scenario than that envisaged by the executive, while remaining resolutely positive about the future: “The French economy is well positioned to weather the energy crisis”, assure its experts who see the return of economic expansion from 2024 with growth of 1.8%.

In the meantime, 2023 will be a “difficult year to pass”. The Banque de France anticipates a “clear slowdown from next winter”. If the French economy were to contract, the recession would be “limited and temporary”, she stresses, however. “It would be a technical recession limited to 2 or 3 quarters,” say its economists.

At this stage, the reference scenario adopted by the institution forecasts a 0.5% increase in GDP next year (with an increase in prices estimated at 4.7% on average over the year), thus indicating that for the upper range of the estimate.

However, the context remains extremely fluid. In addition to the unknown changes in gas prices and the wholesale electricity market, there are questions about the quantities deliverable, the level of substitutions or the need to make power cuts affecting households and businesses.

Stagnation in purchasing power per capita

The speed at which inflation falls will also depend on the energy market. Be that as it may, a return to the 2% targeted by the Central Bank is not expected before the end of 2024. In fact, the rise in the prices of food and manufactured goods will remain “high” in next year due to the spread of soaring costs. The increase in the prices of services will be sustained by wage growth.

In view of wage negotiations in companies, the Banque de France anticipates an increase in the average salary per head of 5.5% next year, after 5.4% in 2022, “without seeing any sign of the start of a price-wage spiral. Job creations should mark time. In the current context of high inflation, purchasing power per capita should stabilize all the same, supported by the revaluation of certain social benefits, after a decline of 0.5% this year.

These projections were made before the presentation of the new format of the tariff shield which will be implemented from next January but with “fairly close” assumptions. Household consumption should thus rise modestly by 0.6% next year. Households should nevertheless draw slightly on their woolen stockings, the savings rate falling to 15.8% of disposable income against 16.2% this year.

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