Since 2017, France has shown impressive economic health. Likewise, while the giants of the world are sinking under the consequences of the Covid-19 pandemic, she has been able to recover. But if a global pandemic has failed to destabilize this robust economy, can geopolitical tensions do so?
Indeed, the various geopolitical tensions (between Russia and the rest of the West) and the resulting intense economic sanctions project the worst for the economy of all of Europe in the coming years. It is therefore legitimate to wonder whether France would be able to escape a second time from a planetary phenomenon which paralyzes most of the countries of Europe.
Impacts of geopolitical tensions on the French economic recovery
According to several studies, including the OECD report, inflation could rise to an additional 2.5 points due to geopolitical tensions between the West and Russia. Indeed, this war will have a negative impact on the European financial and energy market: two very important pillars of economic recovery in France.
In the report published on Thursday 17 March, Secretary General Mathias Cormann clearly shows that the economic upheavals are wide-ranging and are likely to continue in the future. But the summary of this report states that: “the economic impact of the conflict is very uncertain and will depend on the duration of the war and the responses of the States”, States among which France is at the top of the list.
From these remarks, the impressive economic recovery of France could be seen in free fall if the geopolitical tensions persist.
Influences of recent geopolitical conflicts on inflation in France
Mismanagement of inflation can only have consequences for the economy of a country or a continent. However, for investors, inflation represents a boon that should be taken advantage of.
Already with the health criticism, France’s GDP had already taken a big hit. As a result, geopolitical tensions between Russia and the West will only fuel the consequences of the health crisis on economic recovery.
A decrease in GDP of 2 points is expected if the inflation linked to these conflicts is not quickly managed. Many studies and statements have been made to this effect.
Maxim Manturov, Head of Investment Advisory at Freedom Finance Europe, says: “Equities have traditionally been seen as a hedge against inflation, as companies are expected to be able to offset rising input costs by charging higher prices for their products and services. In this environment, most companies are expected to show growth in revenue and earnings as inflation rises. In times of high inflation, investors may consider increasing the share of equities in their portfolios Given that inflation has long been expected to rise and many assets have “priced” higher inflation into their valuations, it is possible that the inflation is already approaching its peak Inflation has risen sharply due to strong consumer demand and continued labor and supply shortages is lying.”
Roles of geopolitical conflicts on certain French economic plans
Ukraine and Russia have a weak role in the world economy but hold a fairly significant influence on the French economy. These two countries actually hold a large share in exports, particularly raw materials. Between them, they have a percentage of 30% on the world export of wheat, 20% for corn, 20% also for gas and mineral fertilizers and 11% for the world export of oil. They are also key exporters of neon, argon, nickel and palladium.
Source: Statista
Mainly, these exports are directed to France. The cessation of these important exports (key factors of the French economy) greatly affects the economic growth of France.
Obviously, the cessation of exports has not only slowed down operations, but also interrupted commercial maritime transport. This causes a great shortage of foodstuffs in France. As a result, this phenomenon generates a fairly high food price.
Example: on Friday March 4, wheat cost €284 but to date it has reached a record high of €393. The irony is that this goes without saying with most other products. Several economists like Philippe Crevel (Macroeconomist) announce that prices will rise more and more if these geopolitical conflicts last. This would inevitably be a brake on the economic recovery that France has enjoyed since 2017.
Source: Statista
Economic impacts of geopolitical conflicts on France
Taking into account France’s energy dependence on one of the countries in conflict, France finds itself in a delicate and unpleasant position. Several other studies, including once again that of the OECD, show that the French economy could fall if geopolitical conflicts affected the energy sector. Already for this consequence, France plans in advance to transit in favor of the use of renewable energies. Alternatives to the use of Russian gas and oil have already been proposed. This is along the same lines as the “Resilience Plan” presented by the Prime Minister.
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