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French growth should slow more than expected due to war in Ukraine

published on Tuesday 12 April 2022 at 21:02

French growth is expected to slow more than expected in the first quarter of 2022, to 0.25%, while the war in Ukraine is already having significant adverse effects on several industrial sectors, the Banque de France estimated on Tuesday.

The French central bank cut its previous growth forecast of 0.5%, when INSEE still expected a 0.3% increase in gross domestic product (GDP) in the first quarter in mid-March.

“After returning to pre-crisis levels in the third quarter of 2021, ahead of the European average, GDP (gross domestic product) should continue to grow in the first quarter of 2022,” but at a “more moderate way”. due to the international environment,” estimates the Banque de France in its monthly economic survey. In the last quarter of 2021, GDP grew by 0.7%.

This slowdown in the French economy seems to confirm that growth over the year will be much lower than the 4% initially forecast by the government, and Economy Minister Bruno Le Maire has already indicated that the government will update its forecast shortly. review.

In mid-March, INSEE had indicated that it expected household consumption to fall by 0.5% in the first quarter, while their purchasing power should have fallen by 1.4% due to inflation. This is a concern for French growth, where consumption has traditionally been the main driver.

“The month of March was marked by the war in Ukraine, the first effects of which are being felt on the French economy. In addition, given the resurgence of the Covid-19 epidemic, China has reintroduced containment measures in certain regions, which may have eased supply difficulties. strengthened,” explains the Bank of France after surveying more than 8,000 companies for its survey.

– “Slippery road” –

“The shock is much less brutal than the Covid shock of two years ago, but it could last longer and affect our growth and jobs,” warned Banque de France governor François Villeroy de Galhau in an interview with the newspapers of the Ebra group (L’Est Républicain, The latest news from Alsace, Le Dauphiné Libéré, etc.).

“Undoubtedly we will have to go through difficult economic times. The French economy is moving on a road that has become smoother,” he added.

While activity continued to progress in the first quarter, it was mainly in the services sector, especially in the hospitality industry, which is gradually recovering from the end of the epidemic-related health restrictions.

In industry, on the other hand, the situation is more mixed. In February, French industrial production surprised observers, falling 0.9%, according to INSEE data, and the situation is said to have deteriorated further in March.

In the auto industry, whose supply chains have been hit hard by the conflict in Ukraine, 89% of companies surveyed by the Banque de France now say they are facing supply problems, 10 points more than in February.

Another consequence of the war is that agri-food companies are also experiencing supply problems, as the country is a major supplier of sunflower oil and cake in particular. They now report problems at 59%, against 45% in February (+14 points), the Banque de France underlines.

For the month of April, the central bank is pointing to a situation of “great uncertainty”, especially in manufacturing, even if companies still expect a slight growth in activity. Services would remain well oriented, while construction companies foresee a “very slight downturn” in their activity.

In addition to supply chain disruptions, inflation is a concern. It jumped to 4.5% in March, the highest level since the 1980s, boosted by rising energy prices.

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