France spent €2bn on the Olympics - has the country benefited economically? Banque de France deputy governor, Agnès Bénassy-Quéré considers France’s current economic outlook.
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00:00People don't trust us. There is overemphasis on energy prices and food prices.
00:05If GDP doesn't grow, then purchasing power cannot grow.
00:14Hello, I'm Angela Barnes, and you're watching The Big Question, a series from Euronews where
00:20we speak to leaders about some of the biggest topics on today's business agenda. And today,
00:27I'm joined by Agnes Benassi-Carré, the Deputy Governor of the Bank of France. Agnes,
00:33it's a pleasure to have you with us on The Big Question on Euronews.
00:36Thanks for having me.
00:37Thank you very much. Now, it's been a very eventful year for France.
00:41You have had a snap election and then the Olympic Games as well in August.
00:46Are you able to share any data on how the Olympics has helped boost the French economy?
00:52Okay, so the cost of the Olympic Games is not fully known at this stage. There's some
00:59estimations, about nine billion. Half of it is operations, so the organization, and
01:06half of it is investment. Among the operations, 96% is funded by private funds. And then for
01:16investment, it's about half-half, private and public. So the total cost of the Olympics is
01:21not so high. It's about a bit more than two billion for the public finances. Now, on the
01:28benefit side, we can only guess what's going to happen. According to the Statistical Institute
01:35and from our own business survey, we are surveying about 8,000 companies in France.
01:42We estimate that quarter-on-quarter growth rates for the third quarter could be boosted by about
01:50a quarter of a percentage point. And this comes from many services in the private sector. It
01:56concerns hotels, restaurants, transportation, security, but also broadcasting and, of course,
02:02the sales of tickets. So this is a short-term effect. It's a one-off. So only for one quarter,
02:10then we are back to the normal growth rate. And then the longer-term effect is, of course,
02:17extremely uncertain. The specialist of this topic is well-known. He's Vladimir Andreev.
02:25He estimates the gain of about 10 billion, but spread over 17 years. So a very long period.
02:35Huge uncertainty, of course, on this.
02:37Just on GDP, the OECD projections in July point to a slowdown in France's GDP growth from 1.1%
02:53in 2023 to 0.8% in 2024. But it's expected to rise to 1.3% in 2025. And inflation is well
03:02expected to ease to 2% in 2025. Do you agree with these projections?
03:08So in terms of GDP growth, these projections are close to our projections in June,
03:14where we had 0.8% growth in 2024 and a recovery next year and the year after. In terms of
03:21inflation, we think that harmonized headline inflation could go below 2% next year. However,
03:29we are in the process of making a new forecast. So we'll see.
03:34Okay, we will see. And we talk a lot about inflation going up and down. Can you just
03:38put in perspective what it means for average French citizens and those across Europe watching
03:43central bank decisions when it comes to interest rates?
03:46Okay, so GDP is a measure of total wealth that is created during a year. And this wealth is
03:53distributed to households, firms, so to workers and capital owners, and to the government. So for
04:01households, it's the root of their purchasing power. If GDP doesn't grow, then purchasing
04:08power cannot grow. Recent economic data indicates that France
04:13is heading in the right direction. Unemployment has fallen. Annual inflation edged up to 2.3%
04:20in July. These developments, though, are seen as positive for France. But how concerned
04:25are you about geopolitical tensions and the market impact on energy prices, for example,
04:32setting back the progress made on inflation? So if I take the first part of your question,
04:37I think it points to a very important topic, which is the perception of inflation and of
04:42the growth of purchasing power, where the research says that there is over emphasis
04:48on energy prices and food prices. Hence, households have a biased perception of their
04:54own purchasing power. On the top of that, the fact that part of the increase in purchasing
05:00power over the last years has come from employment. So if I'm already employed today and next
05:08year I'm still employed, it could be that my real wage, so the purchasing power of my
05:15wage revenue, comes down, but my neighbor who was unemployed has got a job and his purchasing
05:23power has increased. And of course, the accounting mixes the two and gets an increase in purchasing
05:30power. So when we say that purchasing power in France has not declined during this extraordinary
05:39period, this is kind of a miracle and people don't trust us. Whereas in 2009, purchasing
05:44power did decline in France. So this is a big difference. And in terms of prices, energy
05:51accounts for about 10% of the consumption basket. And in energy, you don't just have
05:57oil and gas, the bulk of it is electricity, actually. And so our view is that, of course,
06:05an increase in oil prices has a negative impact on purchasing power. What was seen in 2021 and
06:1322 was an explosion, I would say, of gas prices. But the gas markets at that time were local,
06:21hence with the invasion of Ukraine by Russia and the impact on the gas market was very European,
06:31so there was a huge impact on prices. We are unlikely to see such an impact in the coming
06:37years, because the oil market and now today the gas market that has become more global.
06:44So since it's global, then the adjustments is spread over the entire market.
06:57And let's talk as well, Agnes, about resilience, because the knock on effect of COVID-19 globally
07:03had such a huge and profound impact on businesses and it touched everybody's lives in some way.
07:09And we've also got the conflicts as we just spoke about as well. Climate change have all
07:15continued to contribute to essentially testing resilience globally. But how resilient has,
07:22in your view, the French economy and businesses become as a result of all of these events?
07:28I think the resilience has surprised everybody with this huge boost of inflation and the strong
07:34reaction of the central banks. It's a very fast increase in interest rates. We didn't get a
07:41recession and we didn't get a financial crisis. And these are two remarkable results. So we get
07:48the disinflation. The disinflation is well underway, proceeding month after month with
07:55kind of instability due to base effects, but it's going. So we are quite confident about it.
08:01And this is thanks partly to the reversal, of course, of energy prices, but partly to the
08:09strong monetary policy. And with all this leverage in the financial sector, we didn't get
08:14a financial crisis. There were some accidents. Credit Suisse, LVB, but there was no banking crisis
08:23with a big B. So this is a remarkable macro result. Now, at the micro level, we have a picture
08:31of small and medium-sized enterprises for France at the end of 23, with the tax files they have to
08:42return. And this is quite positive on average. We see a resilience of these firms in terms of
08:51cash, in terms of value-added profits, in terms of declining debt, in terms of markup, in terms of
09:02profitability, I said. This is the average. Now you see in France, like in other countries,
09:09an increase in the bankruptcy rate. So the last figure is about 60,000 bankruptcies over a month.
09:19So it seems a very large number. It's more than pre-COVID, but it's about the same as a long-term
09:26average between 2010 and 2019. And on top of that, you need to look also at the creation of firms,
09:34which is about 90,000. So the net creation is positive. Agnes, what more needs to be done
09:41to withstand the unpredictability of the future and protect those SMEs and firms that are falling
09:49into the pitfalls of bankruptcy? So the economists are quite sharp on this. They tend to say that
09:59bankruptcy is part of the normal working on a capital economy. And they see bankruptcies
10:10positively in terms of freeing capital and labor to more productive projects. So it's not necessarily
10:16a negative outcome to the extent that there is no scar, especially for the CEO and the workers.
10:26So there is a need to take care of the people, not necessarily of the business itself.
10:39Ursula von der Leyen is back for her second term at the top of the European Commission,
10:46and the next five years certainly look to be challenging. Brussels is gearing up for a battle
10:51over its finances as it struggles to both increase defense expenditure and continue with the green
10:58transition. There's also a lot of preparation to do potentially on the widening of the bloc.
11:04What do you see as the biggest economic challenges for the Bank of France and the
11:10European Central Bank in the next five years? It's a good question. I would say that there
11:14are three main challenges. The first one is to complete the disinflation, to come back to
11:202% inflation rate over the medium term, which is the mandate of the central bank. We are still above
11:272% and well declining, but we need to finish the work, to quote a famous president, and also to
11:36cope with new shocks. The second challenge is innovation. As a central bank, we need to adjust
11:43to the innovation that is taking place in the financial sector, crypto assets for instance,
11:49adapt the supervision of the system, but we also need to innovate ourselves, to use
11:57artificial intelligence, to use maybe the blockchain in the area of wholesale payments,
12:04for instance. The third challenge I would say is climate change. Climate change is really a
12:10challenge for central banks because on the one hand, it's a source of shocks. Natural disasters
12:16are inflationary, and transition climate policies are also a source of shocks to prices. Transition
12:25policies have two impacts. One could be inflationary with the carbon tax, and the other
12:32one is the depletion of public finance, which shifts the burden of stabilisation to central
12:41banks. Of course, central banks also need to play a role in terms of greening the financial system,
12:48which has already started with green stress tests, for instance, that have been implemented
12:54for banks and for insurance companies, and this is going to continue. Well, Agnes, thank you very
12:59much for sharing all of your insights on everything from interest rates, inflation to
13:03the challenges ahead. It's been wonderful having you on The Big Question. Thank you for the
13:08invitation. Thank you. And thank you very much all for watching. If you want to check out our
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