The French economy ended the year 2024 with a worrying note with a contraction of 0.1 % of its GDP in the fourth quarter. This situation is involved in a particularly tense context, where the public deficit reaches the alarming level of 6 % of GDP, placing France among the worst students in the euro zone.
An economy weakened by political uncertainties
The French economy marked the PAS at the end of 2024. After growth of 0.4 % in the third quarter, GDP contracted 0.1 % over the last three months of the year, according to the 'INSEE. This drop coincides with the end of the Paris Olympic Games, which had temporarily stimulated economic activity.
Alert signals are increasing. Household consumption slows down, going from an increase of 0.6 % to only 0.4 % this quarter. On the business side, the investment is in a standstill, while that of households decreases by 0.3 %.
This situation reflects a climate of generalized distrust, amplified by the political crisis that the country has been going through since the dissolution of the National Assembly in June.
The business world sounds alarm. Bernard Arnault, CEO of LVMH, denounces an excessive taxation which pushes companies to invest outside France. MEDEF echoes these concerns, evoking a “real deterioration” of the business climate and an increasing “anger” of entrepreneurs.
High -tension public finances
The situation of French public finances becomes particularly worrying with a deficit which reaches 6 % of GDP, a level which places France in a delicate position towards its European partners.
The new Prime Minister, François Bayrou, faces a major challenge with the crucial vote on the Budget 2025 scheduled for next week. His government aims to achieve more than 50 billion euros in savings to bring the deficit to 5.4 % of GDP in 2025, a goal that seems more and more difficult to achieve.
The confidence of international investors is growing, as evidenced by the growing gap between French and German borrowing rates at 10 years. Even more worrying, French rates are now exceeding those of Spain and Portugal, an unprecedented situation that illustrates the degradation of the perception of the French signature on the financial markets.
In short, the prospects for 2025 remain gloomy, with expected growth of only 0.5 %, well below government forecasts. Faced with a crisis that worsens, especially on the employment front, the Bayrou government will have to find a balance between reduction in the deficit and support for the economy to avoid an even more marked deterioration of the situation.
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