France Economy Faces Growth Hit From Iran Conflict

The French economy had been on track for robust growth in the first quarter, with projections between 0.2% and 0.3%. This positive outlook, based on extensive business surveys, was a testament to the resilience of key sectors.

However, the recent emergence of the Israel-U.S. conflict with Iran has cast a shadow over these forecasts. The Bank of France has cautioned that the projected growth may need to be revised downwards. This potential adjustment stems from concerns that the escalating Middle East crisis could lead to a significant rise in energy prices or disrupt global supply chains, impacting French businesses.

Despite these emerging challenges, several French industries continue to demonstrate strength. The technology sector, in particular, has maintained activity above its long-term trend for nine consecutive months. Services also outperformed earlier expectations, and the construction sector, while facing underlying difficulties, has so far held its ground. Companies did report a slight deterioration in cash flow and extended client payment delays.

Businesses surveyed indicated expectations of continued firm activity in March. Nevertheless, the Bank of France highlighted the elevated uncertainty as a notable risk for the quarter's end. Firms are actively considering the potential for increased energy costs and logistical interruptions as direct consequences of the geopolitical tensions.