Banque de France signals uncertainty as growth slows and prices rise


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France’s central bank said the war in Ukraine is already affecting the economy and creating great uncertainty that makes it difficult to predict how inflation will pick up or how much the recovery from the Covid pandemic will slow.

Instead of publishing its regular economic projections, the Banque de France has taken the unprecedented decision to present two scenarios. Its “classic” scenario is based on the February 28 forecast, while a “downgraded” version takes into account the rise in oil, gas and wheat prices seen in early March.

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Growth in 2022 will be about 0.5 percentage point lower due to the war in the first scenario, and 1 point lower in the second.

“It’s a negative economic shock,” Banque de France Governor François Villeroy de Galhau said in an interview with Le Parisien newspaper. “It’s less growth, more inflation, but in still uncertain proportions.”

With so many doubts about the effects of the war in Ukraine, economic policymakers across Europe are struggling to calibrate their response. Last week, the European Central Bank released a baseline projection and two additional negative scenarios, and gave itself more flexibility on when it would raise interest rates. Governments, meanwhile, are only in the early stages of discussing new funding to cushion their savings.

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Villeroy said any additional fiscal support should remain “targeted and temporary” and that the French government should not repeat the “no matter the cost” approach it has taken to support the economy during the coronavirus pandemic. Covid.

“The shock is less strong this time, but it could have more long-term consequences,” Villeroy said.

Banque de France chief economist Olivier Garnier said the economy – which had already reached pre-crisis levels last year – is also dampened in the short term, as oil prices energy jumped as production rebounded again rather than at the end of a cycle where activity would have been more vulnerable.

“In the scenarios we present, it’s more of slowflation than stagflation because we still have some growth,” Garnier said.

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