ECB’s Villeroy: Inflation Shock Is Being Replaced by Uncertainty Shock

11 July 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Thursday said that uncertainty was emerging as a new threat to growth and employment at the same time that the impact of inflation was fading. 

In an interview with Radio France, Villeroy, who heads the Banque de France, said, ‘While we are coming out of the inflation shock, which is the good news, unfortunately another shock arrives. It’s a shock of uncertainty.’

The threat of uncertainty, which had a political component, would be ‘very negative shock for growth and for employment’, he said.

The French companies surveyed by the Banque de France reported that uncertainty led consumers to prefer to save rather than to spend, he said, which culminated in business postponing investments and freezing new hirings.

‘I believe that to reduce uncertainties, we must tell the truth and recognise the demands of reality’, he said. ‘I also note that if our fellow citizens have sent a strong message in this election, it is their concern to be better respected, better considered.’

The French economy was resilient and had escaped recession, he said.

‘This means that victory against inflation is in sight, we will return to the 2% target’, he said.

Asked about the French budget, which would be defined by the end of September, Villeroy said that he expected the political situation to the clearer and uncertainty reduced by then.

‘I believe that we can perfectly make choices while reducing deficits’, he said. ‘There are priority expenses and then there are expenses where we can save money. Once again, let's look at what works best among our neighbours.’