The OFCE is sounding the alarm: the restrictive budget planned for 2025 risks seriously hampering the growth of the French economy and the purchasing power of households. These gloomy prospects, linked to budgetary choices, could affect the financial markets, already under tension.
A sudden brake on economic growth
According to the latest forecasts from the French Observatory of Economic Conditions (OFCE), French GDP growth is expected to fall to 0.8% in 2025, compared to 1.1% expected in 2024. This downward revision is mainly explained by the negative impact of the restrictive budgetary policy envisaged by the government.
“ Budget tightening could cut growth by 0.8 points in 2025 “, warns Mathieu Planeeconomist at the OFCE. Cuts in public spending and increased tax pressure will weigh heavily on economic activity. Despite these efforts, the public deficit would remain high at 5.3% of GDP.
Furthermore, the climate of political uncertainty following the dissolution of the National Assembly should also slow down private investment. The OFCE estimates that this “shock of uncertainty” could cost 0.2 points of additional growth.
Purchasing power and consumption under pressure
French households will not be spared from this economic slowdown. The OFCE anticipates a drop in purchasing power of 0.2% in 2025, after a slight increase in 2024. This erosion of the standard of living should weigh on consumption, the main driver of French growth.
Of course, inflation should continue to slow (1.5% forecast in 2025), but not enough to compensate for wage moderation and rising unemployment. The unemployment rate could in fact rise to 8% in 2025, compared to 7.5% expected at the end of 2024.
Faced with this mixed outlook, stock market investors could adopt a cautious attitude. Cyclical and consumer stocks risk being particularly affected by this gloomy context. On the other hand, defensive stocks and yield stocks could do well.
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