France’s economic outlook for 2024 has been revised down, with Labour Minister Astrid Panosyan-Bouvet confirming a reduction in the country’s growth forecast. Initially set at 0.9%, the French government now expects growth to be just 0.7% this year. Panosyan-Bouvet discussed the change during an interview on France 2, citing economic conditions that have become less favorable. The revised forecast follows predictions from the Bank of France and signals growing concerns about France’s economic future.
Reasons Behind the Revision
Minister Panosyan-Bouvet emphasized that the state’s growth expectations must align with the current economic realities. The downgrade follows a similar announcement by Finance Minister Éric Lombard, who made the first signal of the reduced forecast during a parliamentary session earlier this week. Lombard described the situation as fragile, adding that fiscal challenges are looming over the nation.
The country’s reduced growth forecast reflects a global economic slowdown, exacerbated by the ongoing uncertainty surrounding international trade, particularly the proposed tariffs by former U.S. President Donald Trump. These trade tensions, particularly with Europe, are now beginning to impact French industries, potentially stalling the recovery that the country had hoped for after previous downturns.
Bank of France’s Outlook: Modest Growth Through 2027
The Bank of France initially reduced its 2024 growth forecast to 0.7% in mid-March, a significant drop from the previous estimate of 0.9%. It had also projected 1.1% growth for 2023, which did not materialize. Looking ahead, the Bank forecasts slightly stronger growth in the coming years, with projections of 1.2% in 2026 and 1.3% in 2027.
However, these optimistic figures may still be subject to global trade uncertainties, particularly the threat of tariffs imposed by the United States. These ongoing trade tensions may continue to weigh heavily on French exports, which could limit the economy’s ability to rebound fully.
U.S. Tariffs Pose Risks to French Exports
One of the most immediate risks to France’s economy is the threat of new tariffs under the U.S.’s trade plans. Trump’s administration has proposed 25% tariffs on European goods, with more details expected soon. France stands to be particularly affected by these tariffs, given its strong trade ties with the U.S., which was its fourth-largest export market in 2023.
Key sectors of the French economy, including aeronautics, pharmaceuticals, and beverages, could suffer significant losses if the tariffs are imposed. In 2023, France shipped €7.9 billion worth of aeronautics goods, €4.1 billion in pharmaceuticals, and €3.9 billion in beverages to the U.S. Business leaders are urging the government to prepare a strategy to protect these vulnerable sectors from the damaging effects of new trade barriers.
Officials are also concerned that the tariffs could disrupt the ongoing recovery in export-driven industries, delaying France’s ability to return to pre-pandemic economic levels.
Budget Deficit Continues to Widen
Adding to France’s economic woes is a widening public deficit. In 2024, the country recorded a public sector deficit of 5.8% of GDP, totaling €169.6 billion—far above the 3% limit imposed on eurozone members. Former Prime Minister Michel Barnier had attempted to address the deficit through austerity measures, but his efforts were unsuccessful due to public resistance. His government eventually collapsed in December, leading to the appointment of a new Prime Minister, François Bayrou.
Bayrou’s government passed a budget in February that includes spending cuts and tax hikes, but the deficit remains a critical issue for the country. The new Prime Minister has set ambitious goals to reduce the deficit to 5.4% in 2025 and below 3% by 2029, but the political landscape remains challenging. France’s divided parliament and ongoing political instability continue to hamper progress on these fiscal goals.
Political Gridlock and Rising Borrowing Costs
France’s political environment remains unstable, and this gridlock is putting additional pressure on the economy. With ongoing political debates over fiscal policies and reform efforts, investor confidence has been shaken. The country’s borrowing costs have risen in response, increasing the burden of debt servicing.
The political deadlock and inability to pass substantial reforms are seen as a major obstacle to stabilizing France’s finances. As borrowing costs increase, the government faces even greater pressure to implement effective fiscal policies while navigating a turbulent political landscape.
Consumer Caution and Domestic Growth Struggles
The domestic side of the economy is also facing challenges. Finance Minister Éric Lombard has pointed to high household savings as a drag on economic growth. With consumers spending less, domestic demand has weakened, contributing to the slowdown in growth. Rising long-term interest rates have further strained the economic outlook, as borrowing costs for businesses and households continue to climb.
The government has also faced pressure to address fiscal policies related to defense spending. Changes to EU fiscal policies have forced the government to balance the need for investment in critical areas such as defense while maintaining fiscal discipline. These challenges highlight the complex task of reviving France’s economy amid external and internal pressures.
A Complex Path to Recovery
As France faces an uncertain future, the government must navigate these economic challenges while attempting to regain growth momentum. Balancing fiscal responsibility, trade relations, and domestic demand will be key to overcoming the current difficulties.
The road to recovery will not be easy, but France must work quickly to address its economic vulnerabilities. With global trade instability, rising public debt, and political gridlock, the French government faces a challenging task ahead.