Towards slower growth in France, but without a restart of inflation

After a 0,1% increase in gross domestic product (GDP) in the first quarter, "activity should increase slightly in the second," it indicated in its monthly economic survey.

"Our survey confirms a certain resilience of the French economy," stressed its governor, François Villeroy de Galhau, in an interview with the Ebra group newspapers.

"However, it is affected by uncertainties, and it seems that international uncertainty has taken precedence over national uncertainty," he added.

"At this stage, we see slower growth for 2025, but without a recession," he said.

The Banque de France, which is currently forecasting annual growth of 0,7%, like the government, will update its macroeconomic forecasts in June.

"European Economic Cap"

However, she clarified that her quarterly forecast was still "very preliminary" due to a month of May marked by several public holidays "and uncertainties over customs duties."

For its part, the National Institute of Statistics (INSEE) anticipates growth of 0,2% in the second quarter.

Washington has imposed 25% tariffs on steel, aluminum, and automobiles from the European Union, and 10% on most other exported goods. Brussels threatened on May 9 to impose tariffs on American cars and airplanes if negotiations fail.

"The Trump administration's protectionism will lead to a resurgence of inflation in the United States, but not in Europe, which will likely allow for a further rate cut by the summer," said François Villeroy de Galhau, who sits on the monetary decision-making body of the European Central Bank (ECB).

In April, the ECB cut its rates for the seventh time since June 2024, hoping to counter the effects of heightened trade tensions with the United States, which are threatening growth. The benchmark deposit rate was lowered by 25 basis points to 2,25%.

Its next monetary policy meeting is scheduled for early June.

"But, to remove the uncertainty, and since there is unfortunately no longer an American direction, it is very important to set a European economic direction: it is urgent to build Europe's economic and financial sovereignty," argued the Governor of the Bank of France.

He called for "a general European mobilization. This will not happen by itself; we must act now and strongly in accordance with the recommendations of the Draghi report: to integrate our single market more fully, to invest better, to innovate faster with less bureaucracy."

Wait-and-see attitude

In this context, the Banque de France's uncertainty indicator, based on a textual analysis of the comments of some 8.500 companies surveyed between April 28 and May 6, rose slightly in services and industry in April, but fell in construction.

With the exception of the wine sector, "there is no direct effect at this stage on activity from the increases in US customs duties. On the other hand, there is undoubtedly an indirect effect via the uncertainty, via the wait-and-see behavior that this generates," noted its chief economist, Olivier Garnier, during a press conference.

Activity would be supported between April and June by market services and manufacturing, while construction would decline.

In April alone, activity increased "significantly" in industry and construction, and "more moderately" in market services.

Construction has seen a surge, benefiting in particular from the fall in interest rates.

While the food, pharmaceutical and automotive industries drove industrial activity, the aeronautics sector lost momentum "due to the decline in the dollar, which is affecting sales in the United States, and difficulties in the supply chain."

Order books remain considered empty, except for aeronautics.

In May, activity is expected to decline in all three major sectors due to bridge closures.

Illustrative image of the article via Depositphotos.com.