French growth will suffer from government savings plans, according to the OFCE

To cope with the soaring public deficit (5,5% of GDP in 2023 compared to 4,9% expected), the executive made a decree of 10 billion euros in savings in State spending in 2024, and promised 20 billion additional cuts in 2025, this time extended to communities and social spending.

“Of the 10 billion announced, approximately 7 billion have real effects on French GDP,” detailed OFCE economist Mathieu Plane on Wednesday during a press conference presenting the “2024-2025 Perspectives” of the economic organization.

“From the moment you make savings, you reduce a certain number of transfers” to households and businesses, which has a negative impact on the “behavior” of these economic actors, such as consumption or investment, he said. explained Mr. Plane.

The details of the savings planned for 2025 are not known, but it is "more complicated" to assess with certainty their impact on growth, he warned. “Our forecast will evolve depending on the precise announcements that are made,” anticipated the economist.

The ten billion savings already recorded contribute in any case to the lowering of the OFCE's growth forecast for 2024, to 0,5% compared to 0,8% anticipated until then, the government counting on 1%.

“In 2025, French growth is expected at 1,2%”, half a point less than the government forecast (1,7%), adds the OFCE.

If the drop in interest rates, raised urgently by central banks to try to curb inflation, will have a positive effect on activity, it will remain "constrained by the new budgetary adjustments planned by the government (. ..) in addition to the total removal of tariff shields" on electricity prices.

The savings measures would at least have the merit of reducing the deficit to 5% of GDP in 2024 and to 4,4% the following year, still well above the European objective of 3%.

The government, which until now was counting on a decline in the deficit to 4,4% from 2024, must update its forecasts on Wednesday.

Finally, "after three years of decline, public debt (...) would start to rise again in 2024 and 2025. It would reach 112,8% of GDP in 2025, after 111,9% in 2024 and 110,6% in 2023", anticipates the OFCE.

In the immediate future, the observatory expects growth of 0,1% in the first quarter of 2024 then 0,2% in the second.

“In the third quarter of 2024, a slight peak in growth (0,3%) is expected due to the tourism effect linked to the Olympic Games in the summer of 2024, followed by a decline in the fourth quarter (0,1%) ", details the OFCE.

Growth should restart more clearly in 2025, with GDP increasing by 0,4% each quarter.

It would be supported in particular by a rebound in consumption, encouraged by the easing of inflation to 2,4% in 2024 then 2,2% in 2025, not far from the 2% price increase objective pursued by the European Central Bank.