Economic Activity in France

PARIS (Reuters) – France’s economic activity retreated slightly in the fourth quarter despite firm consumer spending as the boost from the Paris 2024 Olympic Games waned, according to the statistics agency INSEE on Thursday.

The soft end to the year adds pressure on lawmakers to pass France’s 2025 budget, which has been delayed for weeks due to political disputes over spending cuts, weighing on business and consumer morale.

The euro zone’s second-biggest economy contracted 0.1% in the last three months of 2024 after an unrevised 0.4% expansion in the third quarter, preliminary data from INSEE showed.

The Olympic Games underpinned French third-quarter growth due to sales of household services, tickets, and broadcasting rights, INSEE reported.

Domestic demand contributed positively to gross domestic product in the fourth quarter as consumer spending cooled only slightly after the Olympics boost, with inflation easing and vehicle sales jumping ahead of new regulations.

“While growth had been driven by public spending and external demand in the past three years, private domestic demand is finally showing some signs of life,” said Societe Generale economist Fabien Bossy in a research note.

Household spending, traditionally the motor of French growth, rose 0.4% in the quarter following a 0.6% rise in the previous three months, while business investment held steady, contrasting with previous quarters where it had pulled back.

Foreign trade remained a drag on activity in the last quarter, with exports declining while imports rebounded. Additionally, a drawdown in corporate inventories also contributed to the growth slowdown.

A Reuters poll of 30 economists had forecasted that growth would be flat in the fourth quarter, with estimates ranging from -0.2% to +0.3%.

“Beyond the mechanical end of the Olympic Games’ positive effect, the year-end slowdown underlines the need to adopt a budget to put an end to uncertainties and restore household and business confidence,” stated Finance Minister Eric Lombard.

A panel of lawmakers was meeting on Thursday to negotiate a compromise budget bill that is expected to be presented to the lower house early next week, which may trigger a no-confidence vote against the government.

The year-end performance left France with full-year growth of 1.1%, unchanged from the previous year and in line with the government’s forecast.

The government has based its 2025 budget plan on a forecast of 0.9% growth, which the fiscal watchdog described late Wednesday as “optimistic” and left little margin of error for the deficit target of 5.4% of economic output.