Beau highlights euro area resilience and downside inflation risks
Denis Beau, First Deputy Governor of the BIS, stated that the euro area and French economies have shown remarkable resilience despite global shocks. He noted that disinflation is essentially complete, with inflation at 1.7 percent in January, but highlighted persistent global uncertainties and downside risks to the inflation outlook.
Disinflation complete, growth surprises
Denis Beau, First Deputy Governor of the BIS, highlighted the remarkable resilience of the euro area and French economies despite significant shocks.
He stated that the disinflation process is now essentially complete, with euro area inflation at 1.7 percent in January, close to the 2 percent target.
This 'immaculate disinflation' was achieved without a recession.
Economic activity has continued to show resilience, with euro-area GDP growth exceeding expectations at 0.3 percent in Q4 last year, above the 0.2 percent forecast.
First-quarter 2026 growth is likely to surprise on the upside for both regions, with France forecast at 0.2-0.3 percent.
Global uncertainty has increased due to geopolitical events and unpredictable US trade policies, though financial market volatility remains contained.
Domestic uncertainty in France has eased slightly, improving business sentiment.
Inflation differences persist, with France at 0.4 percent in January due to wage moderation and moderate administered price increases.
Domestic demand underpins moderate growth
The central scenario for France and the euro area projects slightly stronger growth momentum in 2026, primarily driven by domestic demand.
Rising household purchasing power and a resilient labor market are expected to support consumption and investment.
External demand is also gradually improving.
However, uncertainty remains a notable headwind, with the household savings rate expected to remain high at 18.4 percent, potentially muting consumption and investment.
The inflation outlook for both regions sees headline inflation staying below 2 percent in 2026 and 2027, gradually returning to the ECB's 2 percent target in 2028, largely influenced by energy base effects.
Core inflation is expected to decrease as wage pressures moderate.
Vigilance remains paramount
Despite successful disinflation and economic resilience, the outlook is clouded by persistent global uncertainties and potential downside risks to inflation from external factors.
Policymakers must therefore maintain a stance of pragmatic agility, ready to adapt to evolving data rather than adhering to a fixed path.
This flexible approach is crucial to navigate the complex interplay of geopolitical tensions and economic shifts effectively.