If certain indicators turn orange, or even red, the French economy will escape recession this year thanks to good resilience. A resilience which could however be called into question by the outcome of the discussions on the Budget and the geopolitical context.
Public finances adrift, social plans and factory closures increasing, an uncertain political and geopolitical climate which encourages investors to be cautious… No doubt, it's a gloomy end to the year which is coming. announcement for the French economy.
INSEE confirmed this recently by predicting French activity slowing down in the 4th quarter, with zero growth. But despite the ambient pessimism, the governor of the Bank of France, François Villeroy de Galhau, calls for us not to give in to catastrophism.
“The French economy confirms, month after month, a certain resistance, a certain resilience,” he said on France Inter in mid-November.
Because without ignoring the most worrying indicators, certain signals qualify the observation of an economy that is running out of fuel. The picture is certainly far from idyllic, but it is not as dark as some think, as François Villeroy de Galhau summarizes: “The French economy is neither black – as everyone tends to think. say today- neither rose”. At least, for now.
• France escapes recession
Let's start by saying that the zero growth expected in the 4th quarter must be put into perspective since it above all illustrates the backlash of the “JO effect” which boosted GDP between July and September (+0.4%). Ultimately in 2024, activity would increase by 0.8 to 1.1%, according to the various projections, as in 2023 (+0.9%). This is certainly little, but more than enough for France to escape recession.
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This “soft” growth to which France subscribed between 2012 and 2017 is ultimately “more or less aligned with that of other countries in the heart of Europe”, observes Christopher Dembik, economist and investment strategy advisor at Pictet Asset Management. France is doing even better than Germany which, heading for a second consecutive year in recession, could almost envy the French “performance”.
If France is not doing so badly, it is in particular because its economy depends more on its internal market and is therefore less exposed to the turbulence of the global economy. “The weight of its industry (in GDP) is also less strong” than in other countries at a time when “European industry is suffering a competitiveness crisis”, underlines Eric Dor, director of economic studies. at the IESEG School of Management. In the current context, “these factors which are rather factors of weakness in normal times become factors of resistance”, adds the economist.
• An industry that is “globally” resilient
This resilience of the French economy should not mask the social plans and factory closures announced in recent weeks, including by large groups. Latest examples to date: Michelin, which has decided to close two factories in France, and Auchan which intends to cut its workforce.
But in both cases, “it is not a problem of economic conditions”, indicates Christopher Dembik for whom “the economic context is not ideal, but we have experienced much worse”.
The tire manufacturer is mainly paying for the lack of competitiveness on a European scale, while Auchan is suffering from structural difficulties, the distributor having failed to adapt its obsolete model centered on hypermarkets.
In the industry, the situation is far from homogeneous. Some companies in the manufacturing sector are experiencing significant difficulties, “but it's a global phenomenon” which is not specific to the French economy, notes Christopher Dembik. In its latest survey, the Banque de France notes above all that “one of the good surprises (…) is that the industry, overall,” held up “relatively well” in October, explained François Villeroy de Galhau.
“For example, aeronautics, which we thought was devastated at the time of Covid, is a sector which is doing well today. The agri-food industry is a sector which is starting again,” welcomed the governor of the Bank of France. .
The fact remains that business insolvencies jumped by more than 20% in October over twelve cumulative months. But here again, be careful of too hasty conclusions since this resurgence is above all a sign of catching up while the number of failures had collapsed during the Covid years due to the significant aid received by companies, starting with “zombies”.
• A record employment rate
After several quarters of clear increases in 2021 and 2022, employment deteriorated in the 3rd quarter, with 17,700 net job destructions recorded by INSEE. Over the same period, the unemployment rate increased slightly to reach 7.4% and could approach 8% at the end of 2025, according to forecasters. A sign of a turnaround in the economy?
“I don't think it's the French economy that's turning around, it's the job market,” analyzes Eric Heyer, director of the analysis and forecasting department at the OFCE, on BFM Business.
As with business failures, the deterioration of the job market essentially seems to reflect a return to normal after the Covid years during which businesses benefited from massive support to preserve employment (partial unemployment, guaranteed loans by the State, learning aid, etc.). Thanks to this aid, many companies anticipating a rebound in activity after the pandemic have been able to retain their workforce and sometimes even hire.
“Companies did not lay off workers as they usually do during a shock, it was an anomaly,” explains Christopher Dembik.
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Now that French growth has returned to a modest pace and support measures have disappeared, companies are “adjusting employment, which is completely logical”, indicates Eric Heyer. And added: “It is not so much the fact that we are going to destroy jobs that seems incredible, it is that we have created so many before. (…) We created 6.5% of “jobs since the start of the Covid crisis for only 5% economic growth in the private sector”. “So we are readjusting”, which will lead to “150,000 job losses next year and an unemployment rate of 8%”, according to the OFCE economist.
By the same logic, hiring is falling according to Urssaf data, while still remaining above its pre-Covid level. But for Christopher Dembik, the “best barometer of the job market, more than the unemployment rate,” remains the employment rate. However, this indicator which reports the number of people in employment to the total population aged 15-64 in the third quarter reached a record level in the third quarter, at 69.1%.
• Consumption that remains solid
An essential element in the good health of the French economy, household consumption, without reaching peaks, “remains robust given the circumstances” thanks to “purchasing power which has been relatively sustained”, estimates Eric Dor. Despite inflation, household purchasing power, supported by state aid and improved employment, rebounded by 0.3% in 2023, after falling in 2022. This same purchasing power should increase by 1.3% in 2024, now that “the inflationary episode is over”, observes INSEE (+1.2% in October).
The only employees were worse off. Their purchasing power has eroded over the last two years, with increases generally being less significant than inflation. But the trend reversed in 2024, with INSEE expecting an increase in the average real salary per capita of 0.9%.
The return to normal of the labor market in recent months with job cuts is also reflected in productivity gains, which suggests that companies will be able in the coming months to continue to “increase employees more than “inflation, without deteriorating their margins”, underlines Eric Heyer.
• The markets still trust France
Despite an unprecedented slippage in public finances and the lack of structural reforms, the rating agencies continue to be lenient towards France. In October, Fitch and Moody's maintained the rating they assigned to the French debt, simply downgrading its outlook.
An indulgence which is due to the characteristics of the French economy “fairly well diversified and highly dependent on its domestic market”, according to Eric Dor. “When we talk with foreign investors, there is no feeling of panic. France is perfectly able to finance itself,” adds Christopher Dembik.
For the economist, “there is a feeling of psychodrama in France while for foreign investors it is Business as usal: they know that it is difficult to make structural reforms in France.
• And then?
It remains to be seen whether France can maintain its capacity for resilience for much longer. Because if “François Villeroy de Galhau's diagnosis is correct, we must not hide behind that so as not to clean up public finances because we do not yet know very well which way the boat may lean”, says on guard Eric Dor.
In the very short term, Christopher Dembik is concerned about the recessive effects of the 2025 Budget. As it stands, the text “provides for an increase in direct and indirect taxation”, he recalls. Which could cost a few tenths of a growth point, according to him, for “several years”.
Another element likely to darken the horizon: political instability. The latest EY barometer published this week already showed a loss of attractiveness of France in the eyes of investors since the dissolution. But what would happen in the event of government censorship following budgetary discussions? If Edouard Philippe is worried about a “financial crisis” in the event of the fall of the Barnier government, Christopher Dembik estimates that this risk is low, “between 0 and 10%”. But “if there is a complete blockage, sooner or later the markets will react. That's the danger”, warns Eric Dor who fears a surge in the spread, the difference between the rates at which France and the 'Germany.
Added to this, the geopolitical context and the fear of a trade war with the arrival of Donald Trump in the White House which could weaken a certain number of companies. All of these elements explain why the uncertainty indicator measured by the Banque de France among business leaders “remains relatively high in all sectors”.
