The institution publishes its new projections in an uncertain national and international context. Growth would only reach 0.9% in 2025 compared to 1.2% forecast in September.
The last fragments of optimism have fallen. French GDP growth is now expected at 0.9% in 2025, according to end-of-year projections from the Banque de France published this Monday. Last September, before the presentation of the budget and the parliamentary chaos that followed, the institution headed by François Villeroy de Galhau still anticipated an increase in activity of 1.2%… The drop, of 0.3 points , is not negligible. “Our reference scenario remains that of an exit from inflation without recession, with a recovery delayed to 2026 and 2027 compared to our previous projections”positive however the institution. The unemployment rate has been revised upwards, to 7.8%, compared to 7.6% anticipated in September.
Confirming its growth forecast of 1.1% in 2024, the Banque de France estimates that in 2025 “growth would slow down a little (…) linked to the effects of fiscal policy and uncertainty, both on household consumption and on business investment.” A clarification which is of no less importance: this projection was stopped at the end of November, i.e. before the motion of censure which brought down the Barnier government and temporarily deprived France of a 2025 finance law. While waiting for the new executive led by François Bayrou manages to have a budget adopted for the coming year without being censored, the country must be content with a special law renewing the text for 2024. The Bank of France therefore had to deal with this climate of uncertainty to make forecasts.
No more growth with a more flexible budget
To do this, it chose to support its budgetary assumptions for 2025 “on the government’s initial finance bill (PLF) presented to the Council of Ministers on October 10”, “leading to a significant reduction in the public deficit to 5% of GDP in 2025.” Because, she justifies, in a scenario without a voted PLF, a less tight budget – therefore accompanied by a larger deficit – “would not necessarily lead to excess growth”. This due to “increased uncertainty” generated, which “would then compensate for the more limited nature of the budgetary restriction.” The Banque de France estimates that its projections “remain compatible with alternative hypotheses leading to a more pronounced deficit in 2025, between 5% and 5.75% of GDP where the top of this range would correspond to the absence of a budget and to the estimate of the application of the only special law.” An estimate which corresponds to that displayed by the first president of the Court of Auditors Pierre Moscovici – “a little less than 6%” – early December. Growth would then be expected at 1.3% in 2026 and 2027, favored by the return of private investment and household consumption. The latter is expected to be the main driver of growth from 2025 and for the following years. As a corollary, the savings rate would begin to decrease under the effect of the fall in short-term interest rates “but would remain in 2027 at a level even higher than its pre-Covid historical average”.
The employment curve does not look better. Entered into a “transitional slowdown phase”the unemployment rate is expected to reach a peak of 7.8% in 2025 and 2026, while it was forecast at 7.6% in September. It would then start to fall again, to 7.4% in 2027. But still far from the full employment objective (approximately 5%) for that same year, which Emmanuel Macron still displayed last January. According to the Banque de France, this is a delayed effect of the slowdown in activity observed since the Covid crisis. Here too, the scenario is based on Michel Barnier's budgetary text which provided for a reduction in the apprenticeship bonus and a reduction in exemptions from social contributions. Without these measures, it is specified, “employment could be more dynamic”.
Victory on the inflation front
In the short term, inflation is undoubtedly the only reassuring component of these projections. After reaching the historic peak of 7% in February 2023, the consumer price index continues its decline. Expected at 2.4% in 2024, it should register “sustainably below the 2% threshold” : 1.6% in 2025, 1.7% in 2026 then 1.9% in 2027. This rate of 2%, said ” neutral “ because it is supposed to neither stimulate nor restrict the economy, is the one that the European Central Bank is mandated to aim for. What it is doing today through its policy of gradual reduction in key rates. The optimal rate not being truly identified, the «zone» The target is between 1.7% and 2.5% inflation. But the Frankfurt institution alone cannot change the course of things. The slowdown in prices predicted by the Banque de France could be explained as follows: “especially” by the drop in that of energy. Another important clarification: this forecast is based on the hypothesis of the application of the tax measures contained in the draft finance laws planned for October: increase in the internal tax on the final consumption of electricity (TICFE), increase in the co-payment as well as tax on airline tickets. If they were not applied by the Bayrou government, inflation in 2025 would be 0.2 points lower than the current projection, reaching 1.4%. Core inflation, which excludes volatile energy and food prices, would only fall to 2.2% in 2025, with prices falling more slowly in services.
And what about geopolitical hazards? Donald Trump, who will return to the Oval Office in January, could trigger, as he has suggested, a trade war with the European Union. Faced with this unknown, the authors of the note opted for optimism by not taking into account the risk of trade tensions, the effects of which would in any case be “difficult to quantify”.
