The Bank of France publishes a rather pessimistic note on the growth for the coming years.
The monetary institution previously forecasted growth of 1.4% this year, then 1.5% in 2017, and 1.6% in 2018. The revision is to 1.3% in 2016 and 2017, then 1.4% in 2018.
The French model is primarily based on household consumption. However, the positive effects of the drop in oil prices on their purchasing power are expected to wane starting in 2017, explains the Bank of France.
And “these effects would only be partially offset by the slow recovery of wage incomes. Household consumption would slow down, despite a slight decrease in the savings rate.”
A slower increase in investment.
Business investment would continue to be supported by low-interest rates, the growth of activity, and corporate savings, despite a high debt ratio. However, its growth pace would be slower than in 2016 when the effect of the over-depreciation measure was significant. The tax measure was indeed extended by Bercy for companies only under certain restrictive conditions for 2017.
The deterioration of the international environment
The Bank of France’s downward revision is mainly due to less favorable external demand prospects for France in 2017 and 2018, “particularly because of the impact of Brexit on the British economy and its spread to the eurozone economies.”
It has thus significantly revised the scenario for the sale of French products abroad: compared to the latest forecasts, export assumptions are lowered by 0.3 points in 2017, then 0.6 points in 2018.
The economy, however, is still expected to benefit next year from strong support through the accommodative monetary policy of the European Central Bank (ECB), which “would continue to keep nominal interest rates at low levels.”
Overall, the landscape described by the Bank of France and “the evolution of spending” could prevent France from meeting its commitments on the public finances front. The monetary institution is forecasting a deficit of 3.1% next year…
