France’s central bank revised its growth forecast for 2025, lowering it to 0.9% from the previous estimate of 1.2%, citing growing economic uncertainty both domestically and internationally.
This adjustment, announced on December 16, 2024, is the latest sign of challenges facing the French economy as it grapples with political instability and fiscal pressures.
The central bank also trimmed its 2026 growth forecast by 0.2 percentage points, now predicting a 1.3% growth rate, which will remain the same for 2027.
Despite the downgrades, the central bank maintained its 2024 growth projection at 1.1%, matching the figure for 2023, with a particularly weak fourth quarter expected to result in zero growth.
Olivier Garnier, the Banque de France’s director general of statistics, studies, and international affairs, explained that the revisions were due to “increased uncertainty” surrounding the economic outlook. The forecast was made within a context of heightened challenges, including a political crisis and economic fragility.
This comes just days after Moody’s lowered France’s credit rating to Aa3, citing ongoing political strife and a prolonged budget standoff that led to the resignation of Prime Minister Michel Barnier.
France’s political turmoil has centered on a highly contentious budget debate, which has resulted in proposals for significant tax increases and substantial spending cuts.
The French government aims to reduce the public deficit, which is expected to decrease from 6.1% of GDP this year to 5% in 2025. However, analysts warn that the fiscal tightening could further weigh on economic growth in the short term.
In addition to the revised growth outlook, the central bank forecasted that France’s public deficit in 2025 would range between 5% and 5.5% of GDP. The central bank’s reference scenario assumes a gradual exit from inflation without triggering a recession.
However, it cautioned that the recovery would be delayed until 2026 and 2027, much later than initially anticipated. This outlook reflects the broader trend of decreasing inflation, with the European Central Bank’s monetary policy easing since June 2024.
Inflation is projected to fall to 1.6% in 2025, down from 2.4% in 2024. It is expected to remain subdued, with projections for 2026 at 1.7% and 1.9% for 2027.
This decline in inflation is one of the key factors behind the central bank’s revised growth forecast, as it will likely lead to looser monetary conditions, helping to stimulate recovery over time.
The labor market, however, is expected to face challenges in the coming years. The central bank anticipates that unemployment will peak in 2025 and 2026 but remain below 8%.
It warned that the job market would experience a transitional slowdown, as businesses and households continue to adjust to the changing economic environment. The central bank expects the jobless rate to decline once economic activity recovers in the later part of the decade.
Despite the revised forecasts, the central bank’s outlook is shrouded in caution due to the ongoing uncertainties stemming from France’s political instability.
As the government grapples with fiscal consolidation, the outlook for the country’s economy remains clouded, with a fragile recovery projected to take longer than originally hoped.
