Small improvement for the French economy but no clear recovery

The central bank now expects gross domestic product (GDP) to grow by 1,1% this year, compared to 0,8% so far. The forecast for 2025 is maintained at 1,2% but revised slightly down by 0,1 percentage points to 1,5% for 2026.

"The French economy is holding up with growth of just over 1% but we are not yet seeing a clear recovery. There is a certain wait-and-see attitude among both households and businesses due to the uncertainty surrounding the political and international context," its governor, François Villeroy de Galhau, said in an interview with Le Parisien.

Beyond that, France's public accounts, which have been in the red for a long time, constitute another threat to economic activity. "The (public) deficit must therefore return to below 3% (of GDP). But in three years, by 2027," as the outgoing government advocates, "this would not be realistic and would put a stop to growth. It would be better to set a five-year target," the governor judged.

"Speaking the truth"

"It is time to speak truthfully, then to keep our commitments with credibility," he insisted. To achieve this, he believes it is necessary to find 100 billion euros over five years, mainly by cutting spending, but also by lifting "the taboo on tax increases." Rather than the middle classes and SMEs, he advocates "an exceptional and reasonable effort on certain large companies and certain large taxpayers."

In 2024, GDP would be driven by foreign trade, while household consumption, the traditional pillar of French growth, would remain sluggish, still penalized by high past inflation and a savings rate that remains high.

It should also benefit, mechanically, from the upward revision of the figures for 2023 and early 2024 carried out by the National Institute of Statistics (INSEE). The latter is also counting on growth of 1,1% in 2024, slightly higher than the forecast of the outgoing government (1%).

While the third quarter should benefit from the positive fallout from the Olympic and Paralympic Games, a "backlash" is expected in the last three months of the year, according to the Banque de France. The head of its forecasting department, Matthieu Lemoine, estimated at a press conference that growth could then be "close to zero".

In 2025, with the decline in inflation restoring purchasing power to households and an increase in real wages, consumption should take over from foreign trade as the main driver of growth.

Objective: full employment

After +5,7% in 2023, the rate of inflation would slow to +2,5% in 2024 and then +1,5% in 2025, thanks in particular to the fall in regulated electricity prices, according to the HICP index allowing comparisons between European countries. A slight rebound is expected to 1,7% in 2026, but the increase in prices would remain below the ideal target set at 2% by the European Central Bank (ECB).

"The positive consequence is that even if it is not yet the perception, the purchasing power of the French is gradually improving: prices are now increasing less quickly than wages. This should fuel consumption and therefore economic growth," stressed François Villeroy de Galhau.

Private investment would pick up again in 2026 thanks to the drop in interest rates that the ECB began to implement in June after having raised them to unprecedented levels to cool exceptionally high inflation.

As new Prime Minister Michel Barnier continues to work on forming his government, the presentation of the budget to Parliament could be delayed by a week until October 9, according to Matignon.

After 7,5% in 2024, the unemployment rate would reach 7,6% in 2025 before falling back to 7,3% in 2026. "The economic slowdown is delaying the prospect of full employment a little, but this must remain our ambition in this decade", enough to "strengthen our economy", assured the governor.