France exited the growth zone in the final quarter of 2022 due to falling energy imports and firm business investment offset. The latest consumer spending and preliminary gross domestic product (GDP) also show renewed concern for the European area.

The euro zone's second-biggest economy grew 0.1% in the last period of 2022. According to a poll conducted by Reuters, expectations show a positive contrast to the latest data. However, the condition is also measured based on weak domestic demand and companies.

"On paper, France should weather the energy and monetary policy shocks better than any other European country. However, the weakness of domestic demand at the end of last year shows that a recession is possible," said Capital Economics chief Andrew Kunningham

As record inflation eroded household purchasing power, what will have the effect is marking on overall domestic demand. Falling 0.9% from the previous three months, the ECB's focus is now on France and the country's economy.

Rising Inflation in France Adds to the Concerns of the European Public, and the ECB Must Quickly Make a Decision

Countries in Europe are starting to see declining inflation. European countries have already passed the inflation peak, while the inflation peak has not yet been reached in France. So, French inflation continues to increase and to be potentially affected by a recession.

France's inflation rose again in January, increasing to 6% from 5.9% in December. The harmonized index from the ECB also shows that consumer prices have increased by 0.4%. Meanwhile, food prices increased by 13.2%, especially compared to last year's prices.

The end of the fuel rebate led to a 15% increase in household gas bills, while in 2022 it increased only 4%. Energy inflation at a time when it is falling in other countries brought down inflation in France by three percentage points in 2022.

However, there are no further predictions yet. The headline related to core inflation in France was that inflation could continue to rise in February. This will push electricity bills up further, and this will increase the overall inflation rate as well. 

As a result, France's inflation will be higher than other countries. Beyond the development, then inflation in France should continue to rise. It is easier for companies to pass too. 

The ECB will probably want a clear sign of a permanent decline in core inflation before it softens its tone and stops raising the rate with a gradual decline from now on.

The consumer price index also shows that the European Union will adapt its policies to French economic conditions. The IMF also improved the economic forecast for the eurozone amid the energy crisis and raging war currently happening in the euro.

ECB Says Euro Zone Banks Will Tighten Credit by Most Since Debt Crisis

Eurozone banks have had tight access to credit for companies by the most since 2011m since the debt crisis. It expects to continue doing so as they turn increasingly pessimistic about the economy amid rising funding costs. 

So that the drop in demand for mortgages also has the potential to lower confidence. The result is that the eurozone banks will play into the hands of ECB policymakers, making a case for smaller rate hikes in the coming months. 

A net 26 percent of banks polled by the ECB show standards for appropriate loans for companies that are tighter than ever. Furthermore, credit standards are also focused, this time on the customer. 

Credit standards were tightened for consumer credit and mortgages, a trend that the central bank continues to maintain in this quarter, at least until France's inflation subsides.

France may be known as a country with a strong economy. But in this period, we face economic difficulties, and even France is on the brink of recession. This also made the European Central Bank intervene by increasing the interest rate.