Moulin: French growth cut, inflation up amid persistent energy shock
Banque de France Governor Emmanuel Moulin updated the country's economic forecasts, cutting 2026 growth to 0.5 percent and raising inflation to 2.5 percent. He cited a persistent energy shock and the impact of the war in Iran as key factors, while also discussing the recent ECB rate hike.
France's economic headwinds
Banque de France Governor Emmanuel Moulin updated the country's economic forecasts, projecting French growth at 0.5 percent for 2026, a 0.4 percentage point reduction from March.
This follows a 0.1 percent decline in Q1, influenced by exceptional factors.
Growth is then expected to reach 0.9 percent in 2027 and 1.2 percent in 2028.
Inflation is now forecast to average 2.5 percent in 2026, 0.8 percentage point higher than the March estimate, as businesses pass on rising energy costs.
Moulin stated that the government's 2026 deficit target of 5 percent of GDP remains within reach, despite weaker growth, thanks to targeted support measures.
Public debt is projected to climb to 122 percent of GDP by 2028, significantly above the euro area average of 90 percent.
This underscores the urgency of fiscal consolidation to prevent rising debt-servicing costs from eroding fiscal flexibility.
The persistent energy shock
Moulin emphasized that the French economy faces a 'persistent energy shock' stemming from the war in Iran, which began on February 28. This conflict impacts the Strait of Hormuz, and while a US-Iran agreement offers hope for reopening, a return to normality will take time due to demining and restoring production sites.
Regarding monetary policy, Moulin noted the ECB's recent 'necessary but cautious' rate increase, raising the deposit rate from 2 percent to 2.25 percent.
He affirmed the ECB's commitment to data-driven decisions, emphasizing a consensus against announcing a new cycle of rate rises despite the unanimity on the recent hike.
Pragmatism in uncertain times
Moulin's interview highlights the Banque de France's cautious realism regarding France's economic outlook, balancing external shocks with policy responses.
His emphasis on data-driven decisions and fiscal consolidation underscores a pragmatic approach to navigating current uncertainties.
The call for political consensus on the budget reflects a broader concern for France's long-term credibility.