Inflation, energy prices, passbook A, mortgages… the forecasts of the governor of the Banque de France

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François Villeroy de Galhau, governor of the Banque de France, stands in front The Midi Transmission France’s economic record in this period of inflation. According to him, this price increase will peak in the first half of 2023.

The unprecedented inflation France is experiencing is worrying households and businesses. Where are we at the end of the year?

Inflation in France is significantly lower than the eurozone average. We are at 7.1%, while the eurozone average is 10%. But in both cases it is clearly too high, mainly because of the energy bill, which has risen sharply over the past year, but also because of the underlying inflation. This is inflation excluding energy and agricultural commodities, which amounted to 5%.

When will this inflation, which is starting to slow down in the United States, come to a stop?

We believe this inflation will peak in the first half of 2023. We then aim for inflation to return to around 2% within two or three years, ie by the end of 2024. – end of 2025. explained by the uncertainty about the remaining energy.

Will energy price tensions continue or will Europe find new supply circuits that could drive prices down?

As far as energy prices are concerned, we see that oil prices peaked last March and have since stabilized and even declined. But energy prices – including gas and electricity – are unlikely to return to their low levels before 2021. In this context, it remains essential that all of us – households and businesses – reduce our energy consumption.

The policy rate of the European Central Bank (ECB) is one of the instruments used to fight inflation. It is up 2 points since July. How far will the increase go?

A board of directors will be held this week, which imposes my silence on the next monetary policy decisions. The recovery path followed by the ECB in recent months corresponds to a justified normalisation. The aim is to bring inflation back to around 2%.

What are the consequences in our daily lives?

We see that bank interest rates for companies and individuals for their real estate purchases are gradually rising. These rates remain significantly lower than in other eurozone countries and even below historical averages. For mortgages, we averaged 1.8% in France in November, compared to more than 3% for the average of the last twenty years. And 97% of these loans have a fixed interest rate and are therefore protected against future increases, unlike Spain, for example.

Faced with these rate hikes, are you afraid of a standstill in the real estate market?

Fortunately, this is not what we see today. After exceptional growth, real estate credit returns to more normal growth with +6% in loan volume. Mortgages in France are today the most common, the cheapest and the safest in Europe.

Will the Livret A continue to rise?

There is already a significant increase for savers: we were at 0.5% at the beginning of 2022, now we are at 2%. There will be a new increase on 1 February 2023.

To what extent is the purchasing power of the French affected?

After a year 2021 that was favorable on average with an increase of 2%, we expect a limited decline this year. Purchasing power will recover from 2024.

What are your growth forecasts for 2023?

In September we published a bandwidth between +0.8% and -0.5%. Our central scenario remains weakly positive growth for 2023, without ruling out a recession, but it would be temporary and limited. We expect a slowdown in 2023, but no collapse. There will be no hard landing for the French economy, nor for the European economy.

Do you believe the adage that you can only get out of inflation through a recession?

I want to be clear: our goal is not to cause a recession, but to fight inflation.

How much will the energy crisis cost the French economy?

The quantification is very difficult to achieve because energy prices are very volatile. This increase in energy creates an extra bill for the French economy of at least 2% of GDP, or 50 billion euros. While somewhat weaker than the oil shocks of the 1970s, it is very significant and unfortunately this external burden is likely to persist for several years to come. A new “all it takes”, with a still heavy national debt, would be neither possible nor effective. Two imperatives: to divide this bill fairly between companies and households and to accelerate our energy transition.

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