Bank of France Governor Predicts France Will Avoid Recession Until 2028 Amid Middle Eastern Conflict Risks

François Villeroy de Galhau, the Governor of the Bank of France, has expressed cautious optimism about France’s economic outlook, forecasting that the country will avoid recession until at least 2028 despite challenges linked to the ongoing Middle Eastern conflict. In his annual letter to the President, issued ahead of his June resignation, Villeroy detailed that while France’s economy registered zero growth in the first quarter of 2026, it is expected to maintain modest positive growth moving forward.

Inflation has risen notably, jumping from 1.1% in February to 2.5% in April, though it is projected to peak during 2026 and subsequently fall below 2%. The Bank of France outlined three scenarios depending on how long the Israeli-American conflict persists, with the worst-case scenario predicting minimal growth of 0.3% and an average inflation rate of 3.3% this year.

Villeroy emphasized that any aid measures to address fuel price hikes should be targeted and temporary, focusing on those most in need to minimize long-term economic distortions. He also pointed to the strength of the private sector and the potential to boost France’s growth rate from the current 1% to 1.5% within a decade, which could enhance employment, purchasing power, and public finances.

Regarding oil prices, the Bank of France reports a pronounced shift in forecasts due to the conflict. The likelihood that oil prices stay significantly below $100 per barrel has dropped to less than one-third, with unfavorable or very unfavorable price scenarios now accounting for 63% of possibilities. Villeroy cautioned that the longer the conflict continues, the greater its negative impact on inflation and economic growth.

This comprehensive assessment highlights the delicate balance France faces: navigating inflation pressures and geopolitical risks while striving for sustainable long-term economic growth. Villeroy called for a national dialogue focused on long-term strategy and fiscal responsibility, stressing the need to strengthen France’s economic resilience in a volatile global environment.