Central bank sees economic growth hit by Ukraine crisis

15 Mar 2022

Economic growth in France could lose at least half a point in 2022, adding to inflation pressures, according to the central bank.

The Bank of France has set out two scenarios, one founded on conditions as at the end of last month, and a second with a worse context due to the war in Ukraine.

The central bank pegged GDP growth for 2022 at 3.4% within the first scenario and 2.8% under the second, compared to 3.9% growth anticipated before the war broke out, Reuters reports.

“To summarise, depending on the scenario, we would lose half a point or one point in growth over the year,” said Bank of France Governor Francois Villeroy de Galhau to Le Parisien newspaper.

Before the Ukraine crisis, the Bank of France had increased its forecast for growth this year compared to 3.6% in December, taking into account the Omicron variant has shown minor impact on activity, Villeroy went on to add.

The central bank predicted growth at 2.0% in 2023 and 1.4% in 2024 within the first scenario, and 1.3% and 1.1% under the worse scenario.

In regard to inflation, the Bank of France forecasts it would hit 3.7% in 2022, compared to 2.5% forecast in December, before moving back to 1.9% in 2023 and 1.7% in 2024.

Whereas, under the deteriorated outlook, the bank predicts inflation would reach 4.4% this year, 3.3% in 2023 and 1.5% in 2024.

The Bank of France said it didn’t favour either of the two scenarios, considering the high degree of uncertainty. That said, Villeroy said on Saturday that France’s energy mix meant it was less open to the economic impact of the war than other countries in the eurozone.