PARIS, March 25 (Reuters) - The war in Iran has clouded
the outlook for France's economy, with the impact depending on
how long the conflict lasts and how high energy prices rise, the
French central bank said on Wednesday.
In its baseline scenario, which assumes the Middle East
conflict is resolved quickly and the energy shock proves
temporary, the central bank anticipates economic growth of 0.9%
in 2026, down from 1.0% in December, as higher oil and gas
prices curb household consumption and business investment.
Growth in 2027 is forecast at 0.8%, revised down from 1.0%,
before a recovery in 2028 to 1.2% - up from 1.1% previously,
helped by exports and domestic demand, the central bank said in
its quarterly economic outlook.
"The longer the conflict drags on, the higher oil prices
will soar, and the greater the negative impact on the French and
European economies. However, in no scenario do we foresee a
recession for France," Bank of France Governor Francois Villeroy
de Galhau said in an interview with Les Echos newspaper.
BASELINE SCENARIO ASSUMES TEMPORARY ENERGY PRICE SHOCK
The baseline scenario was built on the assumption that the
Middle East conflict would be quickly resovled and the energy
price shock prove temporary.
The central bank outlined more adverse scenarios in which a
prolonged energy crisis would further slow activity while
sharply lifting inflation.
In the worst case, inflation could reach 3.3% in 2026,
versus 1.7% in the baseline, eroding purchasing power. While
inflation is expected to ease in 2027, uncertainty over energy
markets leaves risks skewed to weaker growth and lasting price
pressures.
Meanwhile, the economy would grow only 0.3% this year and
0.4% in 2027 before rebounding 1.5% in 2028 in the worst case
scenario.
The following are the main forecasts with previous
projections in parentheses.
2025 2026 2027 2028
Baseline scenario
- GDP 0.9 0.9 (1.0) 0.8 (1.0) 1.2 (1.1)
- HICP inflation 0.9 1.7 (1.3) 1.4 (1.3) 1.6 (1.8)
Adverse scenario
- GDP 0.9 0.6 0.8 1.2
- HICP inflation 0.9 2.5 0.9 1.3
Worst case scenario
- GDP 0.9 0.3 0.4 1.5
- HICP inflation 0.9 3.3 1.7 0.9
(Reporting by Leigh Thomas; editing by Barbara Lewis)
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