no recession expected (Banque de France)

France can thank nuclear energy. According to Banque de France governor François Villeroy de Galhau, who spoke of France Inter, the French economy should be hit “slightly less” than the rest of the eurozone by the fallout from the war in Ukraine and Western sanctions against Russia because of its less reliance on Russian gas and fossil fuels. While the European Central Bank (ECB) on Thursday cut its growth forecast for the eurozone by 0.5 points for 2022 to 3.7% (and published three different scenarios for the coming years, depending on the severity of the expected impact of this war and the sanctions), the Banque de France published two scenarios for the French economy on Monday morning.

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France probably less affected

François Villeroy de Galhau recalled that the eurozone’s loss of growth could reach 2 points of cumulative GDP by 2024 in the ECB’s worst-case scenario, stating that “it would probably be slightly less for France because our reliance on Russian gas is less than average and our dependence on fossil fuels (…) is less strong”. The Banque de France governor insisted that no recession was expected, even in the most extreme scenario, and that these forecasts were subject to “a lot of uncertainty”.

Global growth: the IMF cuts its forecasts

By the voice of the general manager, Kristalina Georgiavac the IMF has already indicated that next month, at the spring meetings of the International Monetary Fund and the World Bank, a decline in the “global growth forecasts”, without giving numbers. In January, the IMF forecast had already been lowered to 4.4% for 2022, from 4.9% in October and almost 5.9% last year.

As for the impact of the war on Russia, the head of the Fund pointed out that the sanctions ” unparalleled “ imposed by the allied countries lead to: “a sharp contraction of the Russian economy” and even “a deep recession”. The impact of the war in Ukraine is serious: a massive depreciation of the currency that drives inflation up to a decline in the purchasing power and living standards of a large majority of the Russian population. “The spillovers to neighboring countries are also significant, especially countries that are more closely integrated into the Ukrainian and Russian economies,” citing the countries of Central Asia, Moldova and the Baltic countries.

A payment arrears from Russia “is no longer an unlikely event”, she continued, noting that the problem was not the availability of money, but the inability to use it because the country was cut off from the global financial system. As early as Tuesday, March 8, the rating agency Fitch pointed to this risk when it announced it would lower the country’s long-term rating from “B” to “C”, a decision indicating that the risk of a sovereign default in its eyes, “threatening”.

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UK growth could fall to 1.9% by 2022

In the United Kingdom, growth for this year 2022 is also threatened by war and inflation. This dark horizon is somewhat brightened by the January figures for the Gross Domestic Product (GDP) released by the National Bureau of Statistics (ONS) on Friday 11 March. +0.8% after a -0.2% decline in December due to the wave of the Omicron variant of Covid-19 and the restrictions in place.

Despite this recovery, “growth momentum is likely to be interrupted by the conflict in Ukraine, with higher and more volatile commodity prices and shortages of key materials impacting production and leading to higher inflation,” warned Yael Selfin, KPMG economist. He added: “High levels of uncertainty, tighter financing conditions” with rising interest rates “and trade disruptions could push growth to 3.3% this year and 0.8% next year,” she said.

That’s a big slowdown compared to the UK economy’s 7.5% recovery in 2021, the strongest gain in the G7, after a historic contraction of 9.4% last year due to the pandemic, also the strongest of the G7.

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The CEBR economic think tank is even more pessimistic. Rising cost of living, declining consumption and exports due to sanctions against Russia could cut growth to 1.9% this year and zero next year, he said.

At the same time, analysts agree that inflation will easily exceed the Bank of England’s latest estimate, which predicted a peak of 7.25% in April in early February. Paul Dales of Capital Economics says the government can afford to borrow more “to absorb the blow to the purchasing power of households”, without undermining the objectives of a balanced budget. The United Kingdom is indeed “not as exposed to the economic consequences of the war in Ukraine as the rest of Europe”, mainly because the country, a producer of hydrocarbons, is less dependent on Russian energy than other countries, he recalls.

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China expects growth ‘around 5.5%’

The Chinese prime minister warned Friday, March 11, that the country will struggle to “maintain” high growth in 2022. The Asian giant was already preparing for a slowdown in growth in early March with a target of ‘about 5 . 5%” for this year, compared to +8.1% in 2021. This percentage, excluding the Covid period, would be the weakest for China since the early 1990s.

Fears are still current. “Globally, sustaining medium to high growth for an economy of this size (such as China) is a major challenge,” Chinese Premier Li Keqiang told reporters. With the global pandemic, an epidemic resurgence in China and the war in Ukraine, “the economy is facing new downward pressures”, he warned. The Prime Minister did not explicitly mention these factors, but referred to: “various complex environments that change and uncertainties that increase”.

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On the epidemic front, China continues to pursue a zero-Covid policy, unlike many countries who opt for coexistence with the virus and lift restrictions. If China’s strategy enabled the country to recover quickly from the first epidemic shock, then Covid-nose comes with high social and economic costs.

Asked in the margins of the parliamentary session, the prime minister did not answer about the impact the war in Ukraine could have on the Chinese economy. China is Ukraine’s first trading partner, considered the breadbasket of Europe. In particular, the country supplies almost a third of its maize imports to the Asian giant.

(With Reuters and AFP)