PARIS (Reuters) – The governor of the Bank of France (BdF), François Villeroy de Galhau, raised the risk of a “shock of uncertainty” on Thursday that could weigh on the French economy after the legislative elections that led to a parliament without an absolute majority and a political deadlock.
“We are going out [du choc de l’inflation]victory against inflation is in sight, we will return to the 2% target,” he said on franceinfo.
“Unfortunately, another shock is looming on top of this, a shock of uncertainty. The business leaders we interviewed told us of their concerns about the wait-and-see attitude of their customers (…), about the postponement of their investments and about the freeze on their hiring.”
“I believe that this would be a very negative shock for growth and for employment,” he warns.
In its economic report published on Wednesday, the BdF estimated the growth of France’s gross domestic product (GDP) in the second quarter at 0.1%. It is counting on growth of 0.8% for the whole year.
Asked about the possibility that the BdF will lower its forecast for 2024, François Villeroy de Galhau replied: “we will update in September, we will see.”
“But in any case, 0.8% is not much and we obviously need to do more,” he added. The government, for its part, is forecasting growth of 1% in 2024.
Questioned on the economic measures presented during the legislative election campaign, such as the increase in the minimum wage or the repeal of the pension reform, the governor of the BdF did not comment but called for not increasing the deficits.
“There are democratic choices possible. We must decide which spending priorities we will retain,” said François Villeroy de Galhau. “If we make choices, we must not increase the deficits in any way.”
On the risk of an impasse on the vote on a budget for 2025, the central banker believes “that we are not there yet since the budget is happening at the end of September”.
“I hope that by then, to remove the uncertainty, we will have political clarification.”
(Written by Blandine Hénault)
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