France's Economic Outlook

PARIS (Reuters) – France's economy is projected to grow more slowly than anticipated over the next two years due to domestic political turmoil and global volatility, according to the central bank's quarterly forecast released on Monday.

The Bank of France predicts a 1.1% growth for this year, with a decline to 0.9% in 2025, down from a previously estimated 1.2% in September.

Key Factors Influencing Growth

• Government measures aimed at reducing spending and ongoing political uncertainty are expected to impact consumer spending and private sector investments.
• Political crises this year have created a cautious environment for both consumers and businesses, further complicating economic forecasts.

President Emmanuel Macron appointed the fourth prime minister of the year after a dispute led to the previous government being ousted over a 2025 budget bill intended to reduce the public deficit from 6.1% to 5% of output.

Future Predictions

• If the new administration proposes less fiscal tightening, any potential growth boost may be negated by ongoing political uncertainty about public finances. Bank of France Governor Francois Villeroy de Galhau warned that persistent budgetary denial could lead to economic stagnation relative to other European nations.
• The economy is expected to recover with 1.3% growth in 2026 and 2027 as salaries outpace inflation, although saving habits due to uncertainty might limit this growth.

Inflation and Debt Projections

• Average inflation for this year is projected at 2.4%, decreasing to below the European Central Bank's 2% target over the next three years, with 1.6% forecasted for 2025, and rising to 1.7% in 2026 and 1.9% in 2027.
• The Bank of France anticipates that without severe austerity, the country’s debt will continue to rise, reaching 117% of GDP by 2027.

On Friday, Moody's downgraded France’s credit rating, highlighting political fragmentation as a significant obstacle to improving public finances.