France expected to grow 0.7% in 2023, but inflation will prove persistent, says IMF

The staff of the International Monetary Fund (IMF) projects that the French economy will show an increase of 0.7% in 2023, in a context of inflation that is still “persistent over the next two years, as price controls are relaxed”.

The information is in a statement released this Monday (30) by the Fund, after the completion of reviews on the country, within the scope of Article IV of the entity’s rules.

The IMF believes that consumer inflation in France should advance 5% in 2023, slowing down from the high of 5.9% the previous year, still well above the target of the European Central Bank (ECB) for the entire euro zone, of 2 %.

In the Fund’s assessment, France had a “robust recovery” from the Covid-19 shock, but now faces the repercussions of Russia’s war in Ukraine. In 2021, French GDP grew by 6.8%, returning to pre-covid levels, with a widespread and faster recovery than most other European nations.

Still for the Fund, France is less exposed to the energy shock, although the conflict on Ukrainian soil undermines the recovery, by affecting confidence and exacerbating problems on the supply side.

The IMF says that French inflation has taken a “jump” in the last year, with bottlenecks in production chains and the shock to energy prices, although it remains well below peers, thanks to controls in the energy sector and subsidies. These and other measures to support purchasing power, however, kept the fiscal deficit high, even with the reduction in support in the face of Covid-19, he adds.

Still for the IMF, the short-term risks are down for the French economy, such as a prolonged war and an escalation of sanctions or a bigger jump in the prices of gas and electricity. Faster-than-expected monetary policy adjustments in Europe or other parts of the world are also risks on the horizon, he points out.