France spent €2bn on the Olympics - was it good for the economy?
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 over-emphasis 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,
01:05and half of it is investments. Among the operations, 96% is funded by private funds.
01:14And then for investment, it's about half-half, private and public. So the total cost of the
01:21Olympics is not so high. It's about a bit more than two billion for the public finances.
01:27Now, on the benefit side, we can only guess what's going to happen. According to Statistical
01:34Institute and from our own business survey, we are surveying about 8,000 companies in France.
01:42We estimate that quarter-on-quarter growth rate 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,
02:25and he 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
02:521.1% in 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, where we had
03:150.8% growth in 2024, and a recovery next year and the year after. In terms of inflation,
03:22we think that harmonized headline inflation could go below 2% next year. However, we are in the
03:30process of making a new forecast, so we'll see. Okay, we will see. And we talk a lot about
03:36inflation going up and down. Can you just put in perspective what it means for average French
03:41citizens and those across Europe watching central 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 is heading in the right direction.
04:15Unemployment has fallen. Annual inflation edged up to 2.3% in July. These developments, though,
04:22are seen as positive for France. But how concerned are you about geopolitical tensions and the
04:29market impact on energy prices, for example, setting back the progress made on inflation?
04:35So if I take the first part of your question, I think it points to a very important topic,
04:39which is the perception of inflation and of the growth of purchasing power, where
04:44the research says that there is overemphasis on energy prices and food prices. Hence,
04:51households have a biased perception of their own purchasing power. On top of that, the fact that
04:58part of the increase in purchasing power over the last years has come from employment. So if
05:04I'm already employed today and next year I'm still employed, it could be that my real wage,
05:12so the purchasing power of my wage revenue, comes down. But my neighbor, who was unemployed,
05:20has got a job and his purchasing power has increased. And of course, the accounting
05:27mixes the two and gets an increase in purchasing power. So when we say that purchasing power in
05:34France has not declined during this extraordinary period, this is kind of a miracle and people don't
05:41trust us. Whereas in 2009, purchasing power did decline in France. So this is a big difference.
05:48And in terms of prices, energy accounts for about 10 percent of the consumption basket.
05:56And in energy, you don't just have oil and gas. The bulk of it is electricity, actually.
06:02And so our view is that, of course, an increase in oil prices has a negative impact on purchasing
06:10power. What was seen in 2021 and 2022 was an explosion, I would say, of gas prices. But the
06:19gas markets at that time were local. Hence, with the invasion of Ukraine by Russia and the impact
06:28on the gas market was very European. So there was a huge impact on prices. We are unlikely to see
06:35such an impact in the coming years because the oil market and now today the gas market that has
06:42become more global. So since it's global, then the adjustment 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, the 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 2023, with the tax files they have
08:41to return. 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
09:26long-term average between 2010 and 2019. And on top of that, you need to look also at the creation
09:33of firms, which is about 90,000. So the net creation is positive. Agnes, what more needs to
09:40be done to withstand the unpredictability of the future and protect those SMEs and firms that are
09:49falling into the pitfalls of bankruptcy? So the economists are quite sharp on this. They tend to
09:58say that bankruptcy is part of the normal working on a capital economy. And they see bankruptcies
10:09positively 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. And the
10:46next five years certainly look to be challenging. Brussels is gearing up for a battle over its
10:51finances as it struggles to both increase defense expenditure and continue with the
10:57green transition. 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? Good question. I would say that there are three
11:15main challenges. The first one is to complete the disinflation, to come back to 2% inflation
11:22rate over the medium term, which is the mandate of the central bank. We are still above 2% and
11:29well declining, but we need to finish the work to quote the famous president and also to cope
11:36with new shocks. Second challenge is innovation. As a central bank, we need to adjust to the
11:44innovation that is taking place in the financial sector, crypto assets for instance, adapt the
11:50supervision of the system. But we also need to innovate ourselves, to use artificial intelligence,
11:59to use maybe the blockchain in the area of wholesale payments, for instance. The third
12:05challenge I would say is climate change. Climate change is really a challenge for central banks
12:11because on the one hand, it's a source of shocks. Natural disasters are inflationary and
12:18transition climate policies are also a source of shocks to prices. Transition policies
12:27have two impacts. One could be inflationary with the carbon tax and the other one is the
12:33depletion of public finance, which shifts the burden of stabilisation to central banks.
12:41Of 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 for
12:54banks 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,
13:03to the challenges ahead. It's been wonderful having you on The Big Question. Thank you for
13:08the invitation. Thank you. And thank you very much all for watching. If you want to check out
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13:38you