PARIS: France's economic growth is set to slow in 2022 while inflation rises, as the conflict in Ukraine hits the economy, the country's central bank warned yesterday, presenting two possible scenarios.
Growth is expected to drop half a point to 1.1%, the Bank of France said.
France's gross domestic product (GDP) will grow by 3.4% this year if the price of oil averages US$93 per barrel, under one scenario; but by only 2.8% if it reaches US$119, the central bank predicted.
Without the Ukraine war, and the effect on Russian oil supplies, that growth forecast would have been between 3.6% and 3.9%.
The bank expected inflation to reach 3.7% this year – or 4.4% under the second scenario.
The negative impact of the Ukraine conflict on the French economy will have three main effects, the bank said: higher energy and raw materials prices; lower consumption and investment; and a hit on foreign trade.
Bank of France director-general Olivier Garnier said the central bank had not factored in a total halt in Russian oil and gas supplies.
Earlier, the French government announced a package worth €2 billion (RM9.15 billion) to help consumers struggling with soaring fuel prices, with the cost of filling up set to be cut at the pump.
French Prime Minister Jean Castex announced late Saturday that petrol and diesel prices would be reduced by 15 centimes per litre.
The bill will be slashed by this amount when vehicle owners pay, with the state then reimbursing gas station owners for the difference.
“That means every time you fill up for €60, you save around €9,” Castex said.
With petrol prices now topping €2 per litre at the pump in some areas, the government has come under pressure to reduce the impact on households. It has also been under pressure to cut fuel taxes ahead of presidential elections next month, with more than half of prices at the pump made up of taxation.
Underlying petrol and diesel costs are linked to global oil markets which have risen by around 30% since the start of the year due to strong global demand and Russia's invasion of Ukraine.
Last October, the government of President Emmanuel Macron announced a cap on gas and electricity prices until the end of 2022 and handed out cheques to poor households to help them with their domestic energy bills
Eight out of 10 French households have a vehicle, according to official statistics. – AFP