War in Ukraine: What are the macroeconomic implications for French companies?

Sabrina El Kasmi, Head of Economics and Macroeconomics at Bpifrance, discusses the risks and economic implications of the Ukrainian War for French companies.

Just a few weeks ago, there were more than 500 French companies in Russia, including 35 members of CAC 40. How are you today Sabrina El Kasmi, Head of Economics and Macroeconomics at Bpifrance, outlines the situation so far and provides some answers on the impact of macroeconomics on French activities.

Big Media: What is the macroeconomic impact of the war in Ukraine on French activity?

Sabrina El Kasumi : Prior to the conflict, forecasters expected France to grow 3.5-4% in 2022. But at this stage, it is difficult to know how much our economy will be affected.
With an average price of $ 110 per barrel, you can see what will happen if you expect 0.4 points of growth in 2022. We also know that raw materials, excluding energy, will increase by 20%. , Equivalent to reducing France’s GDP growth by 0.1 points.
Also, in the extreme scenario of Russia’s embargo on gas imports, eurozone GDP growth is expected to decline by 3-4 points.

Obviously, this all affects inflation. Prior to the conflict, forecasters expected inflation of 3.2-3.9% in the euro area and 2.5-3% in France. Inflation could be revised upwards by at least one point or more, especially if the energy markets are affected and sanctions and retaliation measures escalate.

BM: Can France implement economic policies to mitigate the shock?

SEK : Yes, especially in situations where European budget rules remain suspended. The economic and social resilience program, announced on March 16, focuses on the most affected sectors. In particular, it offers individuals and professionals a 15-centime fuel discount per liter, helps businesses whose gas and electricity spending accounts for at least 3% of sales, raises PGE caps, and has access to tax and social postponements. To facilitate. Fees for companies affected by energy prices or losses in exports to Ukraine or Russia, extensions of long-term partial activity schemes, and exceptional financial assistance of 35 cents per liter of diesel for fishermen.
Even if you don’t know “whatever the cost”, the cost of the measure is estimated to be at least € 25 billion.

BM: What role do Russia and Ukraine play in the commodity markets?

SEK : We now know that these two countries play a central role in many commodity markets such as energy, metals, agricultural products and even semiconductors. Russia, in particular, is the European Union’s major natural gas supplier, accounting for nearly 40% of imports, and the world’s second largest oil exporter.
Therefore, the outbreak of conflict has led to higher prices for certain raw materials, especially energy. Prices for natural gas, oil, wheat, palladium and nickel have skyrocketed, with particularly significant fluctuations. France is also an importer of certain important industrial raw materials such as palladium, titanium and even semiconductors, even though they are less dependent on energy than their neighbors. An encouraging factor is that France is less dependent on the Russian and Ukrainian economies at the world level. 1.3% of France’s exports go to Russia and 0.3% to Ukraine. And on the import side, 1.6% comes from Russia and 0.2% from Ukraine.

BM: And what about tourism?

SEK : The income from the trade in services with Russia is quite low, so the French tourism sector does not seem to be very exposed. Only 1.2% of revenue comes from travel services related to Russia, and in 2018 there were 900,000 Russian tourists in France. That is, 1% of the total number of tourists and 1.3% of accommodation.

“Among the most exposed sectors, we can mention the automotive sector.”

BM: Are French companies very present in Ukraine and Russia?

SEK : With about 700 subsidiaries in Ukraine and Russia, our presence is quite limited. Russia and Ukraine had 535 and 159 subsidiaries in 2021, respectively. In other words, it is 2% of the overseas French subsidiary. In total, this is equivalent to 235,000 jobs, or 3.4% of the total workforce abroad.

Some major groups are exposed to the consequences of conflict through their activities in Russia. This is the case, for example, in AvtoVAZ, a subsidiary of Renault, where Russia is the second market. This also applies to Total Energies, where 17% of gas production is in Russia, and Rosbank, a subsidiary of Société Générale, whose activities in Russia account for 2.8% of net income banks.
In Russia, foreign direct investment (FDI) accounts for 1.8% of our net stock. Revenues in 2019 will be approximately € 2.7 billion, equivalent to 6.2% of the proceeds from direct investment in France. France’s FDI net inventory was only 0.1% of total inventory, or about € 550 million in 2019.

BM: Does France depend on these two countries for terms of trade and exports?

SEK : Yes for some products. 17% of petroleum products imported from France, 9% of natural hydrocarbons and other mining industrial products are from Russia and Ukraine, including 33% for coal.

In terms of French exports, the most exposed sectors are the aviation industry (4.5% of exports) and the perfume and cosmetics chemical industry (3.4%).

BM: To be precise, which sector is the most exposed?

SEK : Among the most exposed sectors, we can first cite the automotive sector, especially palladium and aluminum importers for the production of exhaust systems, and semiconductors. The aviation sector has also been exposed through the import of titanium, half of which is of Russian origin. The same applies to chemistry, which is a major user of titanium, especially natural gas. The latter is equivalent to 22% of intermediate energy consumption and 3.4% of added value. The agricultural and agricultural food sector is particularly affected by rising prices for agricultural products used in livestock feed.