French Central Bank Lowers Growth Forecast Amid Political Turmoil
The Bank of France published its quarterly outlook on Monday, announcing a downward revision in the country’s economic growth projections for the coming years. The central bank now expects France, the second-largest economy in the Eurozone, to grow by 1.1% in 2024 and 0.9% in 2025; this marks a decrease from the previously projected growth of 1.2% for 2025. This adjustment reflects the combined effects of internal political challenges and global economic fluctuations.
The central bank emphasized that the government’s fiscal consolidation efforts and the prevailing political uncertainty are expected to dampen consumer spending and private sector investment. A series of political crises throughout this year has led to increased caution among consumers and businesses, who are taking a more prudent approach to the economic future in light of the potential rise in U.S. tariffs.
On Friday, additional political turmoil emerged when President Emmanuel Macron appointed a new prime minister for the fourth time this year after opposition lawmakers voted to dismiss the previous government due to disagreements over the 2025 budget proposal. The proposal aimed to reduce the public deficit from 6.1% of this year’s production to 5% by 2025.
The Bank of France warned that if the new government proposes a budget with less fiscal consolidation, the potential growth benefits could be undermined by prolonged political uncertainty regarding the state of public finances. President Francois Villeroy de Galhau cautioned in an interview with Le Figaro that France’s economy could lag behind its European counterparts if budgetary issues are not addressed.
Despite these challenges, the central bank forecasts that economic growth will rise to 1.3% for 2026 and 2027, supported by wages increasing faster than inflation. However, it noted that this growth could weaken if households prefer to increase their savings due to ongoing uncertainty.
The Bank of France also projected that inflation would remain below the European Central Bank’s target of 2% over the next three years, with the rate expected to drop to 1.6% in 2025 and then gradually rise to 1.7% in 2026 and 1.9% in 2027. Unless stricter fiscal measures are implemented, France’s debt is expected to continue its upward trend, reaching 117% of GDP by 2027.