The war will lead to "a little more inflation and a little less growth," according to the Governor of the Bank of France

The war in the Middle East could have repercussions on the global and French economies, weighing on both economic growth and inflation. Interviewed on RTL radio on Wednesday, March 11, the Governor of the Bank of France, François Villeroy de Galhau, estimated that this geopolitical context should lead to "a little more inflation and a little less growth."

The Governor of the Bank of France, François Villeroy de Galhau, believes that the economic consequences of the crisis in the Middle East are gradually becoming clearer. "The meaning of this crisis is unfortunately becoming clearer with each passing day: economically, it means a little more inflation and a little less growth," he told the radio.

However, according to him, inflation in France should remain limited despite geopolitical tensions and economic uncertainty. "Inflation in France will remain low. I sometimes read the word 'stagflation,' which we've been hearing a lot these last few days. That's not stagflation, I want to make that very clear this morning."

Stagflation, a situation feared by some economists and mentioned by the European Commission, corresponds to a combination of stagnant economic activity and rising prices.

Regarding the European Central Bank's (ECB) monetary policy, François Villeroy de Galhau indicated that a rise in key interest rates did not seem justified at the moment in order to contain inflation. "I will say this for the European Central Bank, we have a Governing Council meeting next week: I do not believe," given the current situation, "that it is necessary to raise rates now," he stated.

The governor nevertheless assured that the ECB remained attentive to price developments. "But we will not allow inflation to take hold (...) We owe this vigilance, and therefore this reassurance, to the French people. We are the guarantors of inflation being kept low," added the governor, who is also a member of the ECB's Governing Council.

On the economic outlook side, the Bank of France predicted in February around 1% growth for the French economy in 2026, and is due to publish a new forecast on March 25.

According to François Villeroy de Galhau, the evolution of growth and inflation will depend heavily on the duration of the conflict in the Middle East, involving Iran, Israel, and the United States. "A lot will depend on the duration of the conflict" between Iran, Israel, and the United States, he emphasized.

He also highlighted the high volatility of energy markets, particularly oil. "Regarding our forecasts for the year, we need to take a step back from everything that has happened in the last ten days. You have noticed, as I have in particular, that the price of oil is incredibly volatile," he noted.