French Economy Faces Stagnation in 2025 with Growth Expected at 0.6%
France's economy is set to grow by just 0.6% in 2025, marking a significant slowdown and increased unemployment projections.
Key Points
- • Insee projects French economic growth of only 0.6% for 2025.
- • Household consumption growth is limited to 0.7%, reflecting cautious spending.
- • Unemployment is expected to rise to 7.7% by year-end.
- • Public spending cuts of €40 billion are planned to manage the budget deficit.
The National Institute of Statistics and Economic Studies (Insee) has projected a significant slowdown in the French economy for 2025, forecasting an anemic growth rate of only 0.6%. This marks a decline from the 1.1% growth noted in 2024, raising concerns about the stability of fundamental economic drivers amidst ongoing global uncertainties and internal budgetary constraints.
Insee's report indicates that household consumption is anticipated to rise modestly by 0.7%, which aligns with expected purchasing power increases, a stark reduction from the robust 2.5% surge seen in 2024. Despite this growth, a high household savings rate of 18.2% reflects a cautious consumer sentiment, with many opting to save rather than spend. Factors contributing to this behavior include stagnant income from investments and rising tax liabilities, as well as the low inflation indexing of social benefits.
Investment is expected to experience a further decline; business and household investments are projected to drop by 0.5%, while public investment is expected to decline even more sharply by 0.6%. This decline in investment coincides with rising interest rates and increased taxation complicating the business climate, despite a slight recovery in housing construction.
External trade activities are also forecasted to harm economic growth, with exports stagnating and imports on the rise, anticipated to detract 0.7 percentage points from growth. Notably, U.S. tariffs are expected to have an additional negative impact on French GDP in 2025, as noted by Insee experts.
Unemployment is projected to increase as well, climbing to 7.7% by the end of 2025, reflecting broader economic challenges. The government's previously optimistic growth forecast has been revised down to 0.7%, contrasting sharply with Insee's more pessimistic outlook which suggests growth could be as low as 0.2% over the remaining quarters of the year.
The government is also under pressure to implement significant budgetary consolidations, with plans to decrease public spending by €40 billion, aiming to reduce the public deficit to 5.4% of GDP in 2025. This ongoing fiscal tightening is likely to stifle economic activity further, as acknowledged by Dorian Roucher of Insee.
Overall, the projections paint a challenging picture for the French economy, outlining a year of stagnation alongside possible environmental benefits with a projected 1.3% reduction in greenhouse gas emissions, potentially due to lower economic activity.