Economic Buzz: France Inflation Continues To Be Well Below EU Average Says IMF

21 Nov 2022 , 04:59 PM

The IMF noted in a latest update that after a robust recovery from the economic shock of the COVID pandemic, France is now facing the repercussions of Russia’s invasion of Ukraine. In 2021, GDP rebounded by 6.8 percent and by the end of the third quarter, output had recovered to pre-crisis levels. The recovery was broad-based—consumption, investment, employment, and labor force participation all rebounded more quickly than in most other European countries. While France is less directly exposed to the energy shock due to its reliance on nuclear energy and low dependence on Russian gas, the energy crisis is dampening the recovery by reducing consumers’ purchasing power, denting confidence, and exacerbating supply-side difficulties. Russia’s invasion of Ukraine will continue to weigh on growth into 2023. Inflationary effects, coupled with weakened confidence, will dampen household real incomes and consumption. Higher interest rates and lower confidence will likely slow investment growth. IMF staff now forecast GDP growth of around 2.5 percent for 2022 and around 0.75 percent for 2023, reflecting both lower domestic and external demand. While growth should recover somewhat thereafter, it will eventually converge towards the potential rate of 1.3 percent, with scarring from the pandemic and the energy shock leaving output some 2 percentage points below the pre-pandemic trend. Inflation has surged over the past year, driven by supply chain bottlenecks and the energy price shock. The twelve-month inflation rate of consumer prices (HIPC) reached 7.1 percent in October and is expected to remain high in the coming months. However, inflation continues to be well below the EU average, largely due to energy price controls and subsidies, which has kept price increases an estimated 2-3 points lower.Powered by Commodity Insights