French growth on track despite Middle East uncertainty

The economy of France was positioned for steady growth during the first quarter of the year before a geopolitical escalation between Israel, the United States, and Iran introduced significant uncertainty to the regional outlook. According to the central bank, the euro zone's second-largest economy is currently projected to expand by 0.2% to 0.3% in the first quarter. However, officials warned that this forecast could be revised downward if the Middle East crisis triggers a surge in energy prices or creates further disruptions within global supply chains. The Bank of France based its estimates on a monthly business survey involving approximately 8,500 responses collected between February 25 and March 4. While activity levels in February remained relatively stable, the central bank noted a sharp increase in uncertainty among firms that provided feedback following the outbreak of hostilities on February 28. The survey results indicated that industrial activity stayed above its long-term trend for the ninth consecutive month, primarily driven by the technology sector. The services sector also performed better than initially anticipated by firms, while the construction industry maintained its position despite challenging underlying conditions. Despite the general resilience, some operational challenges have emerged. Companies reported a slight deterioration in cash-flow positions, attributed to longer delays in client payments. Additionally, supply-chain pressures saw a marginal increase, and selling prices continued to rise at a moderate pace. Looking ahead to March, firms generally expect activity to remain firm. Nevertheless, the central bank highlighted that the renewed geopolitical instability poses a risk to the end-of-quarter performance. Businesses specifically cited the potential for higher energy costs and logistical complications as primary concerns that could dampen the economic trajectory in the coming weeks.