As a continuation of last week’s topic, today’s article focuses on
economic forecast for France.
France’s economic performance was expected to remain resilient in
2024, supported by public expenditures and robust foreign trade. However,
fiscal adjustments and political uncertainties are projected to weigh on growth
in subsequent years.
Economic Growth Trends
Real GDP in France was forecast to grow by 1.1% in 2024, driven by
strong net exports, particularly in transport equipment, alongside public
consumption and investment. However, private demand remained muted due to
restrictive financial conditions and elevated household savings.
In 2025, GDP growth is expected to slow to 0.8%, constrained by a
contractionary fiscal stance. Private investment may remain subdued as the
effects of monetary policy easing take time to materialize, while economic
uncertainty persists. Nonetheless, disinflation and rising real wages are
likely to bolster private consumption.
By 2026, economic activity is anticipated to rebound, with GDP
growth projected at 1.4%. This recovery is expected to be fuelled by reduced
fiscal tightening, declining credit costs, and stronger private domestic
demand, as savings rates gradually decrease and investment benefits from
monetary policy adjustments.
Labour Market Developments
France’s labour market demonstrated resilience in early 2024, with
the unemployment rate falling to 7.3% in the second quarter, its lowest since
2008. The employment rate also reached a record 74.7%. However, employment
growth is forecast to slow in 2025 and 2026 as the impact of apprenticeship
contracts diminishes and labour productivity improves. The unemployment rate is
expected to rise slightly to 7.5% in 2025 and 7.6% in 2026.
Inflation Trends
Inflation in France is projected to stabilize below 2% over the
medium term. After reaching 1.5% in October 2024 due to declining energy and
food prices, inflation expected to average 2.4% in 2024 before easing to 1.9%
in 2025 and 1.8% in 2026. Energy prices are forecast to moderate further,
contributing to a more stable inflation environment.
Fiscal Challenges and Public Debt
France’s government deficit was set to increase to 6.2% of GDP in
2024, driven by lower-than-expected tax revenues and high public expenditure
growth. Efforts to reduce the deficit in 2025 include revenue-increasing
measures worth €21.6 billion and expenditure cuts of €12 billion. Despite these
measures, the deficit is forecast to remain at 5.3% of GDP in 2025 and
stabilize at 5.4% in 2026.
Public debt is projected to rise steadily, reaching 117.1% of GDP by
2026, up from 109.9% in 2023. This increase is attributed to persistent primary
deficits and rising interest payments, while the debt-reducing effect of
nominal growth is expected to weaken.
Political Uncertainty and Credit Downgrade
France’s political landscape has added to economic challenges, with
recent turmoil leading to the ousting of Prime Minister Michel Barnier in
December 2024. His successor, François Bayrou, faces the daunting task of
uniting a fragmented parliament to pass emergency legislation and prevent a
government shutdown.
Ratings agency Moody’s recently downgraded France’s credit rating to
Aa3, citing concerns over the growing deficit, which is expected to breach EU
limits for the foreseeable future. Moody’s forecasts the deficit to reach 6.3%
of GDP in 2025, while the Bank of France offers a more optimistic estimate of
5-5.5%.
Conclusion
France’s economic outlook for 2025 highlights a delicate balancing
act between fiscal consolidation and supporting growth. While GDP growth is
expected to decelerate to 0.8%, efforts to reduce the deficit through increased
revenues and expenditure cuts may dampen economic activity. Private consumption
is likely to see modest improvement, supported by disinflation and real wage
growth, but investment may remain constrained by lingering economic and policy
uncertainties. Navigating these challenges will require careful coordination of
fiscal and monetary policies to sustain stability and lay the groundwork for a
stronger recovery in 2026.
References
Butler, E. (2024, December 17). French
central bank lowers 2025 growth forecast after tumultuous year. Retrieved
from EuroNews:
https://www.euronews.com/business/2024/12/17/french-central-bank-lowers-2025-growth-forecast-after-tumultuous-year
European Commission. (2024, November 15).
Economic forecast for France. Retrieved from European Commission:
https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/france/economic-forecast-france_en
Photo:
https://th.bing.com/th/id/R.ec0d0a2b32c4b2588bc422b0bd233a92?rik=AtBZjq6rB%2fW7tg&pid=ImgRaw&r=0