Villeroy de Galhau: French economy needs long-term reforms
Banque de France Governor François Villeroy de Galhau submitted a letter to the President of the Republic in May 2026. It assesses France's economic performance and outlines the need for long-term reforms amid global uncertainty.
Navigating immediate headwinds
Banque de France Governor François Villeroy de Galhau's 2026 Letter to the President of the Republic addresses unprecedented uncertainty from the Middle East conflict, causing a negative supply shock with lower growth and higher inflation.
The Governor emphasizes preparing for all ECB/Banque de France scenarios.
Initial Q1 estimates show zero growth for France, and April HICP inflation rose to 2.5 percent, driven by energy prices.
Projections indicate France will maintain slow but positive annual growth from 2026 to 2028, avoiding recession, with inflation spiking in 2026 before returning below the 2 percent target.
Monetary policy must be cautious yet vigilant, ready to prevent second-round effects.
Fiscal support measures are deemed costly and counterproductive, requiring temporary and targeted interventions, especially as France must reduce its public deficit.
Accelerating the energy transition is highlighted as the optimal response, aligning with Europe's economic sovereignty agenda.
France's long-term economic health
Over the past fifteen years, France's economic performance has been intermediate, aligning with the euro area average.
Annual growth averaged 1.1 percent, resulting in slower GDP per capita growth due to higher population.
Household purchasing power rose 0.7 percent annually, sustained by fiscal transfers that contributed to public finance deterioration.
France now faces high public spending and deficits, with public debt increasing by nearly 30 percentage points of GDP since 2010.
Conversely, employment performance has significantly improved, with falling unemployment and rising employment, particularly among older people.
Inflation averaged 1.9 percent since 2010, one of the lowest in the euro area.
Despite poor public finances, private finances are sound.
While strong in health and decarbonisation, France lags in education and private R&D, and its external accounts require durable restoration.
A collective game to improve
The letter highlights France's inherent economic strengths, but critically underscores a collective need for significant improvement.
The Governor's emphasis on enhancing public spending efficiency, ensuring intergenerational equity, and boosting both the volume and quality of work is crucial.
Without these reforms, France risks falling behind its European peers and failing to unlock its potential 1.5 percent annual growth rate.