Why growth is not expected to increase next year, Le Figaro

This Friday, the Bank of France has lowered significantly its forecasts for growth in france, now estimated at 1.3% in 2016 and 2017, then 1.4 per cent in 2018.

This morning, the Bank of France has published a paper is rather pessimistic about the growth in the coming years. “It is a growth that resists but stays at a level a little low compared to the average of our european partners,” stressed the governor of the Bank of France, François Villeroy de Galhau, interviewed on BFM Business. The monetary institution to provide up to this a growth of 1.4% this year and 1.5% in 2017, and 1.6% in 2018. The revision to 1.3% in 2016 and 2017 and 1.4% in 2018 – so is, according to her, “significant”.

what explains this turnaround?

-A peak of domestic demand would be reached in 2016. The French model is based, for the moment, mainly on household consumption. However, the positive effects of lower oil prices on their purchasing power should slow from 2017, says the Bank of France. And “these effects were only partially offset by the slow recovery in wages. Household consumption would slow down, despite a slight decline in the savings rate”.

- A lesser increase of the investment. business investment would continue to be supported by the low interest rates, the progress of the activity and the level of corporate savings, in spite of a high debt ratio. “Its pace of progress, however, would be lower than in 2016, where the effect of the measure of suramortissement was important.” The tax measure has not been extended by Bercy for businesses that under certain restrictive conditions for 2017.

-The degradation of the international environment. The downward revision of the Bank of France primarily reflects the outlook of external demand addressed to France’s less favourable in 2017 and 2018, “in part because of the impact of Brexit on the uk economy and of its dissemination in the economies of the euro area”. It has significantly revised the scenario of sales of French products abroad: compared to the last forecasts, the assumptions of exports are lowered by 0.3 percentage points in 2017, and then to 0.6% in 2018. The economy should, however, always have the next year of a strong support through the accommodative monetary policy of the european central bank (ECB), which “would continue to maintain nominal interest rates at low levels”.

In total, the panorama described by the Bank of France and “the evolution of the spending” could prevent france to keep its commitments on the foreheads of the public finances. The monetary institution is forecasting a deficit of 3.1% the next year… not to mention the steps that will be taken in 2017 by a newly-elected president.