France's Political Turmoil Threatens Economic Stability

France's political instability is impacting its economy, causing at least a 0.2% drop in growth, according to central bank chief Francois Villeroy de Galhau. Amid a government reshuffling, he stresses the need to reduce the national deficit, warning of potential market penalties if targets aren't met.

France faces economic challenges as political instability grips the nation, contributing to a reduction in growth by at least 0.2 percentage points, central bank chief Francois Villeroy de Galhau stated on Friday. He emphasized that the ongoing crisis is dampening business and consumer confidence, despite assertions that the economy remains stable.

As President Emmanuel Macron aims to appoint a new prime minister, Villeroy reiterated the detrimental impact of uncertainty, cautioning that it leads to increased savings and reduced consumption among households, and delays in business investments. He asserted that while morale may be low, the economy withstands pressure due to entrepreneurial perseverance and public dedication.

Villeroy further stressed the importance of managing France's rising debt, indicating that keeping the public deficit under 4.8% of GDP by 2026 is crucial. He highlighted the urgency of reducing the deficit to meet European commitments and warned of potential investor backlash if progress lags.

(With inputs from agencies.)