Bank of France sees risk of ‘limited recession’ next year

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France’s central bank chief said Friday that Europe could face a “limited recession” next year, as firms and households brace for surging inflation stemming from the war in Ukraine.

Bank of France governor Francois Villeroy de Galhau issued the warning two days after the French statistics office lowered its economic forecasts, with zero growth projected for the final three months of this year.

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“The European and French economies will be faced with a significant slowdown next year, and we cannot exclude a limited recession,” he told a forum hosted by the Eurofi think-tank in Prague.

The INSEE statistics agency reported Friday that industrial production fell 1.6 percent in July from the previous month, with nearly every manufacturing sector posting declines.

Economists at ING called it “a difficult start to the third quarter for the French industrial sector, which is clearly suffering from the disruption of supply chains due to the war in Ukraine, lockdowns in China, and rising energy prices.”

It also noted that deteriorating spending power will also weigh heavily on consumer spending and the services sector, a much bigger component of the French economy.

“As a result, the question is no longer really whether France and other European countries are heading for recession, but rather how fast the recession is coming,” ING wrote in a research note.

President Emmanuel Macron’s government has tabled on 1.4 percent GDP growth for 2023, but that figure could be revised down when it presents its budget proposals for next year, expected to be fiercely contested by opposition parties in parliament.

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