Bank of France Raises Growth Forecasts

By William Horobin Features Dow Jones Newswires

The Bank of France on Friday raised its growth forecasts and cut its inflation outlook, as it expects a rebalancing of the domestic economy with more demand coming from abroad.

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The central bank said it expects gross domestic product in the eurozone's second-largest economy to expand 1.4% this year and 1.6% in 2018. In its December forecasts, the bank expected growth this year and next of 1.3% and 1.4%, respectively.

"French growth is continuing to improve," Bank of France Governor Francois Villeroy de Galhau said in an interview on Radio Classique. "We haven't seen such strong growth in the last five years," he added.

The Bank of France kept its forecast for HICP inflation this year unchanged at 1.2% but cut its 2018 forecast by 0.2 percentage point to 1.2%. The harmonized index of consumer prices, or HICP, inflation rate--which is watched by the European Central Bank to determine if it is meeting its 2% target--will pick up to 1.4% in 2019, according to the forecasts.

The stronger growth outlook indicates that recently elected President Emmanuel Macron is picking up economic tailwinds as he embarks on controversial overhauls of labor laws this summer. Mr. Macron has said loosening France's rigid labor code is essential to stirring growth and bringing down unemployment, but labor unions have indicated they oppose some of his plans.

The Bank of France said its forecasts didn't take into account Mr. Macron's promised overhauls or the possible changing expectations of business leaders since his election win. It currently expects unemployment to fall to 9.7% this year and 9.6% in 2018 after hitting 10.1% in 2016.

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Mr. Villeroy de Galhau said the unemployment rate and growth still below the eurozone average showed there is a need for overhauls, especially of labor rules.

Domestic demand will contribute less to growth this year and next as the effect of lower raw-material prices eases, the Bank of France said in its report. However, France will benefit from an uptick in global growth and a clawing back of market share in global markets, the bank predicted.

"From 2017 on, factors of French growth will rebalance," the Bank of France said.

Inflation will rise steadily, first because of increasing raw-material prices and then due to other factors from 2018 onwards, the Bank of France said.

Mr. Villeroy de Galhau said in the radio interview that the eurozone still needs accommodative monetary policy to support prices.

Write to William Horobin at william.horobin@wsj.com

PARIS--The Bank of France on Friday raised its growth forecasts and cut its inflation outlook as it expects a re-balancing of the French economy with more demand coming from abroad.

France's central bank said it now expects gross domestic product in the eurozone's second-largest economy to rise 1.4% this year and 1.6% in 2018. In its December forecasts it expected growth of 1.3% and 1.4% this year and next.

"French growth is continuing to improve," Bank of France governor Francois Villeroy de Galhau said in an interview on Radio Classique. "We haven't seen such strong growth in the last five years," he added.

The Bank of France kept its forecast for HICP inflation this year unchanged at 1.2% but cut its 2018 forecast by 0.2 percentage points to 1.2%. HICP inflation--the rate watched by the European Central Bank for determining if it is meeting its 2% target--will pick up to 1.4% in 2019, according to the forecasts.

The stronger growth outlook indicates that recently elected president Emmanuel Macron is picking up economic tailwinds as he embarks on controversial overhauls of labor laws this summer. Mr. Macron said loosening France's rigid labor code is essential to stir growth and bring down unemployment, but labor unions have indicated they oppose some of his plans.

The Bank of France said its forecasts do not take into account Mr. Macron's promised reforms, or the possible changing expectations of business leaders since the 39-year-old's election. It currently expects unemployment to fall to 9.7% this year and 9.6% in 2018 after 10.1% in 2016.

Mr. Villeroy de Galhau said that with the unemployment rate and growth still below the eurozone average, overhauls are needed, especially of labor rules.

Domestic demand will contribute less to growth this year and next as the effect of lower raw material prices eases, the Bank of France said in its report. But France will benefit from an uptick in global growth and a clawing back of market share in global markets, the bank expects.

"From 2017 on, factors of French growth will re-balance," the Bank of France said.

Inflation will rise steadily, first due to increasing raw material prices and then from other factors from 2018 onwards, the Bank of France said.

Mr. Villeroy de Galhau said in the radio interview that the eurozone still needs accommodative monetary policy to support prices.

-Write to William Horobin at william.horobin@wsj.com

(END) Dow Jones Newswires

June 09, 2017 02:26 ET (06:26 GMT)