“Overcoming inflation is the first concern of the French. Here we are on the right track
.
In an interview with La
Tribune Dimanche
, the governor of the Banque de France François Villeroy de Galhau shared his forecasts for the coming year.
Inflation, growth, employment, public finances... For the governor, the year 2024 promises to be less
“uncertain”
than the previous ones, despite the geopolitical turbulence.
First news, the
“clear decline in inflation”
observed by the Banque de France at the start of the year.
“The high point of inflation was reached in February 2023, at just over 7%.
Today it has fallen back to around 4%.
According to our forecasts, it would fall below 3% before the end of this first half of the year
.
France is therefore entering a period of disinflation which, according to the governor,
“will lead to an increase in purchasing power on average, because prices will henceforth increase less quickly than wages”
.
With the specter of soaring prices receding, the engine of the French economy will once again become
“growth”
, and no longer
“exports”
, as has been the case in recent years.
“It is a more regular and safer engine”
, assures the governor, in order to ensure that
“inflation will return to 2% by 2025”
.
If the fall in energy prices helped accelerate disinflation, monetary policy also
“contributed well”
to it .
“Monetary policy plays a very important role in moderating the rise in prices in services and manufactured goods.
These results give strong credibility to the action of the ECB
,” believes François Villeroy de Galhau.
The good news on the inflation front will allow the Banque de France to ease up on rates.
“We will lower our rates this year
,” assures the governor, who does not communicate a precise date.
“We will have to avoid two risks: falling too early and then letting go of the inflation target of 2% by 2025, but also acting too late and excessively slowing down activity
,” warns the leader.
A slowdown in activity but no recession
Caution is therefore required, especially since activity is not flourishing on the Old Continent.
“There is a slowdown in activity, in France as in Europe
,” admits François Villeroy de Galhau.
The growth rate expected by the institution is around 0.2% per quarter, which would lead to
“0.9% over the whole of 2024”
.
Despite this slowdown, the governor does not fear a
“turnaround in the economy”
or a
“recession”
, whether in France or in Europe.
Another positive point is France's performance in terms of employment.
“The economic slowdown has not dissuaded businesses from hiring,”
welcomes the governor, recalling that the unemployment rate currently experienced by the country is
“the lowest in more than forty years”
.
Remaining points of vigilance.
The geopolitical situation, first.
The Banque de France regularly examines the consequences of a possible conflagration in the Middle East.
In another register, François Villeroy de Galhau ensures that he is keeping a close eye on the debt of French companies, which is higher than that of American companies.
To remedy this, the governor calls for
“a European financing and investment union”
which would take advantage of the savings surplus of the Old Continent.
“We pass on the bill to our children”
From corporate debt to that of States: guarantor of monetary stability, François Villeroy de Galhau also spoke of the necessary recovery of French public finances.
“A little over forty years ago, France's debt represented 20% of the country, today it is 112%.
We pass on the bill to our children and young people!”
, he asked.
By letting the debt slip away, France runs the risk of being trapped by the debt burden, which is increasing inexorably.
“It will be multiplied by more than three between 2021 and 2027, which eats into our budgetary maneuver,”
he warns.
To escape the spiral of debt, François Villeroy de Galhau recalls the need to
“get out of tariff shields”
.
As such, he welcomes the decision taken by Bercy to gradually increase electricity prices from February 1.
“The decision was not easy but it is necessary
,” he believes.
To stabilize the debt, the governor recommends a budget deficit below 3% by 2027, similar to the efforts made by our neighbors.
“They succeed by spending less.
Let’s look at what works elsewhere to inspire us
,” concluded the head of the Banque de France.