What future for the French economy?

What future for the French economy? What future for a country which accumulates four deficits at the same time – the only exception in the entire euro zone? What future for a country which has a debt of more than 3,000 billion euros and which finds itself sanctioned by a transnational institution – the European Commission – for its budgetary situation? What future, ultimately, for France which, in addition to this disastrous situation, also finds itself in a deep political crisis?

The big question that arises is therefore the following: can we still hope for an economic recovery or is France condemned to downgrading?

The resignation of the Barnier government interrupted the examination of the finance bill for 2025. From now on, it is the new Prime Minister François Bayrou who finds himself up to the task, facing the demands of the different parties. Under these conditions, two options emerge: quickly resume the budgetary texts at the beginning of January, or take more time to rewrite them in depth, with a timetable stretching until February-March. In fact, the specter of triggering a 49.3 looms again (even if the executive still hopes for a traditional vote) because the lack of consensus makes reforms more complex, in a context where each budgetary decision is subject to long negotiations.

In our hyper-financialized economy, the alarm signal comes from the markets, not from Parliament. However, for several weeks, the French borrowing rate has remained relatively high, and the gap with Germany is widening. Without a major surge of course (thanks to the European countries which are fiscally rigorous), this rate has nevertheless exceeded that of Greece, a country marked by a decade of unprecedented crisis. The prevailing political uncertainty, combined with the absence of a budget likely to further worsen the deficit, reinforces the image of a France that is less and less solvent. In 2025, the simple payment of interest on the debt should reach 60 billion euros, more than the budgets allocated to defense or higher education. France is caught in the vicious circle of debt: of the 300 billion euros of emissions planned for 2025, nearly 175 billion will be devoted to repaying past debts, a figure up by almost 20 billion compared to to 2024. Far from investing in the necessary transformations, the country is therefore exhausting itself by financing its inaction. And if the budgetary situation remains so worrying, it is also the lack of long-term vision that worries… Households, overcome by uncertainty, prefer to save rather than consume (consumption is only expected to pick up very slightly in 2025): at 17.6%, the savings rate remains well above its pre-crisis level. The effects are therefore only multiplying: the foreign investments so praised by the Government are notably blocked, even though French securities are showing significant losses.

This crisis is also hitting strategic sectors. Whether it is defense, agriculture, real estate, energy, the main sectors of the country are affected. French defense, pillar of a country’s sovereignty (particularly in this period when every man for himself dominates), sees its credits frozen by nearly 3.3 billion euros. Agriculture, for its part, a historically important sector for the country, has seen more than 400 million euros in aid lost. As for the real estate sector, the expansion of zero-interest loans has for the moment been abandoned, which deprives many households of access to property. In the energy field, the post-Arenh reform, essential for structuring the electricity market, is postponed even though Europe completed an incomplete reform last July. Finally, another unthought remains that of investments in research and development. France only invests around 2% of its GDP, while Germany invests at 4% and the European consensus provides for at least 3%. A country that does not invest in the future is a country that at best stands still, at worst goes backwards…

Faced with this, change so that nothing changes will probably be the Republican motto in the weeks to come. The situation risks getting worse: while Moody’s anticipates a public deficit of 6.3% of GDP in 2024, the rating agency has decided to downgrade France’s credit rating, along with seven banks. national. At this rate, Brussels could sanction the country to the tune of 1.5 billion euros every six months given the excessive deficit procedure to which it is subject. But worse still: this instability could reduce French growth to 0.2% in 2025. But how can we find stable public finances without sufficient growth? Growth helps generate new revenue and reduce both the deficit and the debt. Without sufficient growth drivers, and with inflation now below 2%, the situation is becoming impossible to manage. At the same time, unemployment is expected to jump again and reach up to 7.6% – as we predicted for most European countries at the start of the year. Only 40,000 new positions are expected to be created in France in three quarters, while flagships like Michelin, Renault and Auchan have already announced significant social plans.

This multiple crisis is also taking place in a changed international context. It goes without saying that the multipolarity of the world and the rise of many emerging powers do not benefit France, dissolved in the European project. But the recent election of Trump and the rise of protectionism add to these challenges. The United States remains France’s fourth largest trading partner, with 45 billion euros in exports in 2023. The rise in customs tariffs planned by the new American president – of the order of 10 to 20% on the Old -continent – ​​will cause the French economy to suffer. An increase in prices will lead to a reduction in purchases by American importers and therefore a reduction in the attractiveness of French products. In particular, certain sectors are more affected than others, namely beverages (wines and spirits), textiles, fashion, and agri-food. Small and medium-sized French businesses will be the most affected, as they are unable to relocate their activities as the largest do. Conversely, some of the latter will benefit from Trump’s policies which will also be marked by massive investment programs.

Even though it is lagging behind in the emerging world, France finds itself incapable of meeting the challenges it faces. In the vagueness that reigns today, the future seems to be taking shape, regardless of the Prime Minister in the running. Faced with this situation, either the country makes a 180-degree turn that combines sovereignty and budgetary stability, integrating a new monetary policy that would allow the country to regain control of its destiny, or it remains integrated into current structures – particularly European ones – which leads to assured stagnation and a loss of influence on the international scene. As De Gaulle said, France cannot be France without greatness. Perhaps the time will come for this lost greatness, but for that, great work is necessary.