Bank of France Sees Resilience Amid a Slowdown in the Euro Area

(Bloomberg) -- The Bank of France trimmed its 2019 growth forecast slightly and voiced confidence that the country will pull through the broader weakness in the euro area.

The economy of the single currency is in the doldrums after a sharp slowdown in Germany, a technical recession in Italy, and concern about trade disputes and a messy Brexit. The gloom prompted the European Central Bank to promise last week to keep interest rates unchanged for longer.

France, however, isn’t as exposed to the winds of global trade as other major euro economies. And President Emmanuel Macron has already injected a fiscal stimulus in response to the Yellow Vests protests about low incomes.

“If I had to sum up these forecasts in one word, it would be resilience,” Bank of France chief economist Olivier Garnier said.

The central bank lowered its 2019 growth prediction to 1.4 percent from 1.5 percent in December, and left next year at 1.5 percent. The 2019 figure is higher than the 1.1 percent pace the ECB predicts for the euro area.

Presenting the forecasts in Paris, Garnier said France is doing better than Germany because it’s less exposed to global trade. Also, solid German domestic demand is benefiting French exports.

“When there’s a boom in global trade, Germany benefits much more,” he said. “But when things slowdown in trade, Germany is hit much more and France is much more resilient.”

France is also getting a boost from tax cuts, and household disposable income growth is the strongest since before the financial crisis, according to Garnier.

The Bank of France made deeper revisions to the inflation outlook, cutting its 2019 forecast to 1.3 percent from 1.6 percent. It also warned that the debt ratio will continue to rise, and reach close to 100 percent of GDP this year.

“We must absolutely continue efforts to reduce spending and the budget deficit and not use the current context to delay this adjustment given our level of public debt,” Garnier said.

To contact the reporter on this story: William Horobin in Paris at whorobin@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

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