France growth outlook dims on energy shock, central bank says

PARIS, March 25 (Reuters) - The war in Iran has clouded the outlook for France’s economy, with the impact depending on how long the conflict lasts and how high energy prices rise, the French central bank said on Wednesday.

In its baseline scenario, which assumes the Middle East conflict is resolved quickly and the energy shock proves temporary, the central bank anticipates economic growth of 0.9% in 2026, down from 1.0% in December, as higher oil and gas prices curb household consumption and business investment.

Growth in 2027 is forecast at 0.8%, revised down from 1.0%, before a recovery in 2028 to 1.2% - up from 1.1% previously, helped by exports and domestic demand, the central bank said in its quarterly economic outlook.

"The longer the conflict drags on, the higher oil prices will soar, and the greater the negative impact on the French and European economies. However, in no scenario do we foresee a recession for France," Bank of France Governor Francois Villeroy de Galhau said in an interview with Les Echos newspaper.

BASELINE SCENARIO ASSUMES TEMPORARY ENERGY PRICE SHOCK

The baseline scenario was built on the assumption that the Middle East conflict would be quickly resovled and the energy price shock prove temporary.

The central bank outlined more adverse scenarios in which a prolonged energy crisis would further slow activity while sharply lifting inflation.

In the worst case, inflation could reach 3.3% in 2026, versus 1.7% in the baseline, eroding purchasing power. While inflation is expected to ease in 2027, uncertainty over energy markets leaves risks skewed to weaker growth and lasting price pressures.

Meanwhile, the economy would grow only 0.3% this year and 0.4% in 2027 before rebounding 1.5% in 2028 in the worst case scenario.

The following are the main forecasts with previous projections in parentheses.