Political uncertainty is hampering French growth, according to the OFCE

French growth is expected to remain timid in 2025 and 2026, hampered by an uncertain political climate, a weakening of domestic demand and growing international trade tensions, according to forecasts published Wednesday, October 15, by the French Economic Observatory (OFCE).

The OFCE estimates that France's gross domestic product (GDP) growth will be only 0,7% in 2025, then again 0,7% in 2026, well below its potential growth estimated at 1,4% per year, "with negative shocks outweighing positive ones."

These forecasts were revealed the day after Sébastien Lecornu's general policy statement, which appears to have at least temporarily removed the threat of government censure.

In this prospective exercise, the OFCE judges that the situation of public finances would remain fragile in 2025 and 2026 and expects a public deficit reduced to 5,4% of the Gross Domestic Product (GDP) and 5% in 2026, against the 4,7% hoped for by the government.

As discussions on the government's draft budget begin in the National Assembly, "in the event of more moderate fiscal consolidation," the deficit could reach 5,1% of GDP, or even 5,5% of GDP in 2026 in the more theoretical case of a special law, notes the OFCE. This is a text that aims to temporarily ensure the state's budgetary continuity, in the absence of a vote on a finance law. France had this in place for a few weeks last year before the budget vote in February.

Public debt is expected to continue to increase, rising from 113,2% of GDP in 2024 to 117,6% of GDP in 2026.

This gloomy diagnosis is essentially justified by political uncertainty, particularly since the dissolution of the National Assembly in 2024, which has further increased since August, estimates the OFCE. It estimates its cost at 0,4 points of GDP and 0,3 points of GDP in 2026.

The French household savings rate could begin a "gradual decline," according to the OFCE (French Economic and Monetary Fund). It stood at a historic level of 18,9% of disposable income in the second quarter, according to the latest figures from the National Institute of Statistics (INSEE).

The OFCE forecasts a savings rate falling to 18% by the end of 2026, a level which "remains high, reflecting persistent caution among households in a climate of low economic visibility."

For households, the outlook is not encouraging. On the employment front, the unemployment rate is expected to rise from 7,5% in mid-2025 to 8,2% by the end of 2026, and after a slight increase in 2025, household purchasing power is expected to contract in 2026 (-0,4%).

Illustrative image of the article via Depositphotos.com.