A "limited recession" in 2023 is not excluded, says the governor of the Banque de France

The Governor of the Banque de France said on Friday that he could not rule out a "limited recession" in France and Europe in 2023, in a context where most forecasters are instead predicting a simple slowdown in activity.

"The European and French economies will face a significant slowdown next year, and we cannot rule out a limited recession," said François Villeroy de Galhau in a speech delivered at an event organized in Prague by the European think tank Eurofi.

If the French economy were to contract in 2023, a possible recession would however have "nothing to do" with the historic decline in French GDP in 2020 due to the Covid-19 pandemic, the Banque de France told the AFP.

The recession would also be "limited in time", the same source points out.

The governor's remarks are nonetheless a warning, two days after INSEE published its last economic report in which the institute forecasts a slowdown in growth in the 3rd quarter (0.2%) before stagnation of GDP in the last three months of the year.

A few minutes earlier, Mr. Villeroy de Galhau himself had preferred to speak of a “sharp slowdown” in growth in 2023 on BFM Business.

The government's latest growth forecast is 1.4% for 2023, but it could be revised downwards in the coming days, on the occasion of the presentation of the finance bill for 2023 and the budgetary trajectory of the government until the end of Emmanuel Macron's five-year term.

“Stagnation” of economic activity at the end of 2022 and the beginning of 2023

For its part, on Thursday, the European Central Bank raised its forecasts for GDP growth in the euro zone for 2022, but drastically reduced them for 2023, in a context of an energy crisis resulting from the war in Ukraine.

The monetary institution expects economic activity to “stagnate” in late 2022 and early 2023, it said in a statement.

It now expects growth of 3.1% this year but only 0.9% in 2023, compared to 2.8% and 2.1% respectively forecast in its June projections.

For 2024, the ECB expects GDP to rise by 1.9%, against 2.1% previously.