Villroy: Growth will remain positive, inflation not taking off

The Bank of France has signaled a modest upward revision to its economic growth forecasts for France, with Governor Francois Villeroy de Galhau noting resilience in the face of political uncertainty. The central bank will publish updated projections on December 19, 2025, with Villeroy stating growth for 2025 and 2026 is expected to rise slightly from previous estimates of 0.7% and 0.9%, respectively. This adjustment reflects sustained economic activity despite challenges, including the approval of the 2026 social security budget amid fragile governance.

On inflation, Villeroy emphasized that downside risks remain significant, citing factors such as a stronger euro, cheaper Chinese imports, and slowing wage growth, which could reduce consumer-price gains by 0.2 percentage points by 2027. While acknowledging upside risks like supply chain fragmentation and increased German government spending, he stressed the ECB's commitment to addressing persistent deviations from its 2% target. As he stated, "We would not tolerate a lasting undershooting," rejecting the notion that the ECB would accept prolonged sub-2% inflation.

The ECB's policy stance remains flexible, with Villeroy reiterating "full optionality" for future meetings, though recent rate cuts—reducing the benchmark rate to 2% since mid-2024—reflect a dovish tilt. His remarks align with broader Governing Council caution, balancing France's growth optimism against broader eurozone inflationary pressures.