French growth weakened in 2025 by the American trade war

Like many other countries, the French economy is weakened by the trade war waged across the world by US President Donald Trump, an additional hurdle in the midst of an effort to find 40 billion euros in 2026 to reduce the public deficit to 4,6% and then below 3% in 2029.

To achieve this goal, the Governor of the Bank of France, François Villeroy de Galhau, called for a "shared and fair" effort, provided by "everyone, starting with the most privileged," in the newspaper Les Echos.

After 1,1% in 2024, the central bank now forecasts gross domestic product (GDP) to increase by 0,6% this year, compared to 0,7% in March and 0,9% previously.

Lower than that of the government (0,7%), this new forecast is in line with those of the OECD and the IMF.

A gradual recovery would then occur, but less marked than anticipated so far: growth would reach 1% in 2026 (-0,2 points) and 1,2% in 2027 (-0,1 points).

"The chaos wrought by the Trump administration is primarily penalizing American growth, but it is also weighing on global growth," noted François Villeroy de Galhau. "The French economy is now growing (...) less than our European neighbors, even though it has escaped recession," he added.

"Blank year"

Prime Minister François Bayrou, who is due to announce his guidelines for the next budget by July 14, indicated in May that he wanted to "ask all French people to make an effort."

But even if the public deficit were to be reduced to 4,6% of GDP in 2026, France would remain a dunce in the eurozone. Public debt would balloon to 120% of GDP in 2027, with interest payments exceeding €100 billion in 2030, François Villeroy de Galhau warned.

He called for stabilising public spending excluding inflation and "imperatively" maintaining the 3% target in 2029, believing that the possibility of a budget freeze ("blank year") "may perhaps play a role, in a context where inflation has decreased".

The United States has imposed a 10% customs surcharge on most goods exported by the European Union, and a 25% surcharge on steel and automobiles.

The Bank of France is making the central assumption that these customs duties would not be raised by Washington at the end of a 90-day negotiation period with Brussels ending on July 9, and in the absence of European reprisals.

In 2025, growth would be mainly supported by domestic demand, particularly public demand, and changes in stocks.

On the other hand, foreign trade, which had been its main driver in 2024, would suffer from customs duties, lower exports outside the eurozone and a strong euro.

In the second quarter, growth is expected at 0,1%, as in the first.

"Unpredictability"

In 2026 and 2027, household consumption would strengthen thanks to gains in purchasing power, with wages increasing more than prices.

Business and household investment, particularly in real estate, would observe the same trend in the wake of a drop in rates.

Overall, the increase in customs duties (-0,1 points) and especially the uncertainty it generates for consumers and businesses (-0,3 points) would cause the French economy to lose 0,4 points of GDP over the period 2025-2027.

"This unpredictability amplifies the French and European challenge of sluggish growth, which has been ongoing for too long," the governor stressed. It also affects "financial stability."

After 2,3% in 2024, the Banque de France now anticipates inflation of 1,0% in 2025 (-0,3 points), thanks to the decline in energy prices, according to the Harmonized Index of Consumer Prices (HICP). It would then rise moderately to 1,4% in 2026 and 1,8% in 2027.

For François Villeroy de Galhau, "the victory against inflation therefore seems sustainable." He believes it is "very unlikely" that it will be revived due to the American offensive.

Despite this weakened economic climate, employment is expected to remain resilient. The unemployment rate is expected to reach 7,6% in 2025, then 7,7% and 7,4%.

Illustrative image of the article via Depositphotos.com.