[PAGE_3]Summary[/PAGE_3]
[PAGE_8]The international environment[/PAGE_8]
[PAGE_10]Latest economic trends[/PAGE_10]
[PAGE_13]Labour market[/PAGE_13]
[PAGE_15]Households[/PAGE_15]
[PAGE_18]Companies[/PAGE_18]
[PAGE_22]Risks[/PAGE_22]
[PAGE_23]Focus: when uncertainty weighs on growth[/PAGE_23]
[PAGE_25]The scenario in figures[/PAGE_25]

Marianne PICARD

Our scenario is compatible with a special law scenario in place for some time, followed by a Finance Bill for 2025 adopted early in the year (probably at the end of the first quarter), which will have to find a complicated balance in the National Assembly and be subject to compromise. For this reason, we are assuming a smaller adjustment in public finances than under the previous assumption of a PLF Barnier, and are revising upwards our public deficit forecast for 2025 compared with our last scenario (October). We assume a reduction in political uncertainty from the second half of 2025 onwards, which could result from a more stable coalition or new early general elections, and would make it less difficult to adopt a PLF for 2026 at the end of 2025.

Marianne
 
PICARD
Economist

Economic activity in France quickened in Q3 2024, with quarterly growth coming in at 0.4%, compared with 0.2% in Q1 and Q2. This uptick is explained by the Paris Olympic and Paralympic Games, estimated to have added 0.2 percentage points to Q3 growth. At the end of Q3, carry-over growth for 2024 was 1.1%. 

The economy is not expected to have grown at all in Q4 2024 due to the boost from the Paris Olympics washing out. This would put full-year 2024 growth at 1.1%, unchanged year on year, mainly driven by foreign trade and public spending, with private domestic demand (excluding inventories) stagnating. Average annual CPI inflation eased from 4.9% in 2023 to 2% in 2024. In 2025, growth is predicted to slow to 0.8% and inflation to 1.1%, with prevailing high levels of uncertainty hampering growth: household consumption is set to grow but by less than originally expected, with the recovery in private investment pushed back to 2026. Growth should then pick up in 2026 – assuming political instability eases – to 1.1%, the level of potential growth. However, the output gap will still be negative at the end of 2026. Inflation is set to pick up slightly, to 1.3%.

This scenario is compatible with the adoption of a 2025 Budget Bill in the early part of the year (probably at the end of Q1), with the public deficit shrinking by less than would have been the case under a Barnier budget to reach 6% of GDP in 2025, compared with 6.2% in 2024. It will probably fall to around 5.5% of GDP in 2026.