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French central bank sees growth, inflation hit from Ukraine war

Economic fallout from the Ukraine crisis could knock at least half a point off French growth this year and add to inflation pressure, the central bank said on Sunday.

Faced with uncertainty generated by Russia’s invasion of Ukraine, the Bank of France issued two economic scenarios, one based on conditions as of the end of February and a second assuming a more deteriorated context due to the conflict.

The bank pegged growth in gross domestic product this year at 3.4% under the first scenario and at 2.8% under the second, compared with 3.9% growth anticipated before the start of the war.
“To summarise, depending on the scenario, we would lose half a point or one point in growth over the year,” Bank of France chief Francois Villeroy de Galhau told Le Parisien newspaper.

Prior to the war, the bank had lifted its projection for 2022 growth compared with a December forecast of 3.6% given that the Omicron coronavirus variant had shown little impact on activity, Villeroy said in an interview with Le Parisien.

Under its first, or “conventional”, scenario the bank projected growth at 2.0% next year and at 1.4% in 2024, compared with 1.3% and 1.1% under its “deteriorated” scenario, it said, stressing that neither outlook pointed to a recession.

The war in Ukraine has accentuated in particular a rise in prices of energy and other commodities, including wheat, that could weigh on French households and the economy.

For inflation, the central bank estimated under the first scenario that it would reach 3.7% this year – compared with 2.5% forecast in December – before easing back to 1.9% in 2023 and 1.7% in 2024.

Under the more severe outlook, inflation would climb to 4.4% in 2022 and reach 3.3% next year and 1.5% in 2024.

The bank said it was not favouring either of the scenarios given high uncertainty and that other impacts were possible, including from any interruption to energy imports from Russia.

Villeroy nonetheless said on Saturday that France’s energy mix made it less exposed to economic fallout from the crisis than other euro zone countries.
Source: Reuters (Reporting by Gus Trompiz, Leigh Thomas and Bertrand Boucey; Editing by Susan Fenton)

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