War in Ukraine could already cost France at least €20bn of GDP in 2022

After two long years of a pandemic, the intensification of the war in Ukraine has once again cast a shadow over the economic horizon. The escalation of fighting on the Eastern European front caused electric shocks in many areas. In his speech on Wednesday, March 2, President Emmanuel Macron warned the French:

“Our growth, which is at its highest level today, will inevitably be affected by rising oil, gas and commodity prices, and this will have implications for our purchasing power tomorrow. The price of gas station, the amount of the heating bill, the cost of some products are likely to continue to rise,” he advanced.

The President named two sectors of the economy that “suffer” as well as “will suffer” especially agriculture and industry. “Either because they depend on imports of raw materials from Russia or Ukraine, or because they export to these countries,” he said. he explained.

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Some forecasting institutions, which have revised their gross domestic product growth figures upward in recent months, have already begun to dim their forecasts. Soaring energy prices, disorganized supply chains and declining business and household morale could well dampen activity in France.

Such a shock could have a negative impact on the margins of companies, their savings and investments. What will characterize this shock is its duration.” emphasized economist and research director of the Bank of France Olivier Garnier during a recent press briefing on Thursday, March 3.

For households, energy prices should rise significantly. “Europe’s electricity bills are expected to increase by 30% in 2022,” Euler Hermes economists say. Thereby,annual household electricity bill to reach 3,400 euros in Germany (+500 euros compared to pre-crisis estimates), 3,000 euros in the UK (+400 euros), 2,800 euros in France (+400 euros) and 2,000 euros in Italy (+400 euros) . +300 euros) and in Spain (+400 euros), they add. Even if at this stage it is still difficult to assess the damage done by the war to the French economy, economists interviewed in recent days Gallery seem very pessimistic.

Economists already expect growth to slow down

Just a week after the start of the conflict, the French economy was again plunged into a thick fog. After a historic drop in GDP in 2020 to -8% and a mostly mechanical recovery to 7% in 2021, economic growth in France is about to come to a halt. “The war will cost France at least 0.5 points of growth”, announced ING economist Charlotte of Montpellier in a note released this Friday.

An energy price shock has a direct impact on economic growth. When businesses and families spend more on energy, they spend less on everything else. It is most important”. adds an expert interviewed Gallery.

Thus, the bank revised its forecast for the growth of the French economy in 2021 from 3.7% to 3.2% and does not rule out other adverse changes in the coming weeks. “regardless of whether the conflict continues or escalates.”

For its part, the COE Rexecode also revised its forecasts unfavorably. “The extension of the current sanctions, according to our preliminary assessment, will affect activity from 0.7 to 1 point of GDP,” said economist and economic director Charles Henri Colombier on Twitter. War in Ukraine will affect France’s GDP through 3 main channels: energy resources, financial and investment ties, export” he is advancing. In a week, the Bank of France, which is due to update its macroeconomic forecasts, may overshadow its growth scenario.

Supply chains are still broken

Other factors mentioned include the disruption of supply chains, which “might take longer than expected”a shock to businesses and household confidence. “This will affect consumption and investment. This conflict could have quite a lasting effect on trust in Europe because Ukraine is closer than many other conflicts such as Iraq.” she points out.

Finally, the transmission channel “most difficult to assess” according to economist Charlotte de Montpellier, concerns the behavior of companies with more or less close ties to Russia. “Many French companies are involved in Russia. Sanctions raise fears of a rather significant, yet difficult to quantify, impact on investment projects. Companies’ investment plans will be called into question. All this will depend on the sanctions and the evolution of orders,” she adds. The Economist even mentions “risk of stagflation” (stagnant growth and rising inflation), which “increases” even if this phenomenon must last long enough” to be characterized in this way.

Sustainability Plan in preparation

Faced with this new shock, the government has been working for several days to “economic and social sustainability plan” on behalf of the Head of State. “The Ministry of Economy and Finance has returned to crisis mode to apply these sanctions and implement protective measures. Constant mobilization is required to overcome the immediate and long-term consequences of this crisis,” — Minister of Economy Bruno Le Maire scored during a meeting with journalists on Thursday, March 3, at the end of the working day. In particular, he plans to meet with several economists to assess the impact of this war on the French economy.

Early next week, Prime Minister Jean Castex is due to sectors of the economy most affected by the consequences of the Russian offensive in Ukraine. “The mandate given to me by the President of the Republic is to protect our fellow citizens and the French economy.”he explained in an interview with TF1.

With 40 days to go before the first round of the presidential election, the escalation of the conflict could seriously undermine the end of the election campaign, with Emmanuel Macron filing his candidacy this Friday in a letter to the French people broadcast by the regional daily press.