French central bank sees modest recovery as inflation eases

PARIS (Reuters) – The French economy is on course to avoid a recession this year while inflation pressures ease though growth and will only gradually pick up in the coming two years, the central bank forecast on Wednesday.

In its quarterly outlook, the Bank of France said the euro zone’s second-biggest economy would grow 0.1% in the current quarter from the previous three months and 0.2% in both the third and fourth quarters.

The meant that for the whole of 2023 the economy was set to grow 0.7%, the central bank said, marginally revising upward a previous forecast of 0.6% as Europe’s energy crisis fades and welfare spending increases.

The estimate is more pessimistic than the 1% growth forecast on which the government has built its 2023 budget, which Finance Minister Bruno Le Maire said on Wednesday could be reviewed when the 2024 budget bill is presented at the end of September.

“The big fear six months ago was a recession and high inflation becoming entrenched. We’re more confident today, we are going to gradually get out of inflation while avoiding a recession,” Bank of France Governor Francois Villeroy de Galhau said in an interview with Les Echos newspaper.

From next year, household spending would improve as inflation gradually declined, setting the stage for growth of 1.0% in 2024 and 1.5% in 2025.

The central bank trimmed 0.2 percentage point from both its 2024 and 2025 forecasts as slow growth by France’s main trade partners weighed the outlook.

The Bank of France revised upward its 2023 EU-harmonised inflation forecast to 5.6% from 5.4% previously as food price increases lasted longer than expected. It left unchanged its 2024 inflation forecast at 2.4% and 2025 at 1.9%.

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