Nature risks pose stagflation threat to French economy

The study identifies and prioritizes key nature-related shocks with macroeconomic relevance for France.

Using the NiGEM multi-country semi-structural model, researchers designed two illustrative scenarios.

The first focuses on water-related shocks, combining chronic scarcity, declining quality, and acute disruptions.

This scenario suggests a stagflationary episode for France, marked by a sharp and persistent decline in output alongside rising prices, as water constraints act as a long-term drag on industrial and energy production.

The second scenario models agricultural shocks, including domestic yield losses and a multiple breadbasket failure.

These shocks result in deeper output losses due to global spillovers and sharp food price surges, illustrating how nature degradation in one region can have severe cross-border consequences.

The analysis highlights the material impacts on economic activity and inflation.

Nature provides indispensable ecosystem services, yet natural capital is eroding at an alarming rate.

While climate-related risks are increasingly monitored, nature-related risks are more spatially diverse and complex, making them difficult to quantify and integrate into traditional macroeconomic models.

This study addresses this gap by examining how nature degradation can trigger tangible economic shocks.

For central banks and financial supervisors, this gap is an increasing priority, as ecosystem collapse, water scarcity, or agricultural productivity declines can lead to supply constraints, commodity price spikes, and long-lasting macroeconomic disruptions.

Institutions like the ECB and NGFS have highlighted the need to integrate these risks into stability frameworks.