France has cut its economic growth forecast for 2025. The new projection is 0.7%, down from the earlier estimate of 0.9%. Work Minister Astrid Panosyan-Bouvet confirmed the change on Wednesday. She said that the French government would likely follow the Bank of France’s revised outlook. Economy Minister Éric Lombard had already warned that the economy was fragile in recent days.
Bank of France Lowers Growth Projections
The Bank of France had already adjusted its 2025 growth forecast. It reduced its prediction from 0.9% to 0.7%. The Bank also revised projections for the next few years. It expects 1.2% growth for 2026 and 1.3% for 2027. The change in forecast is mainly due to global uncertainties, especially concerning trade relations with the United States.
The Bank’s new forecast does not include the effects of possible new tariffs on European goods. The uncertainty over these trade policies is expected to weigh on the economy in the coming years.
US Tariffs Pose Risks to France’s Exports
The threat of new tariffs on EU goods by the United States is a major concern for France. Former President Donald Trump has proposed a 25% tariff on European products. While France expects a smaller impact than other EU countries, its exports could still suffer.
In 2023, France’s aerospace, pharmaceutical, and beverage industries were significant exporters to the US. France sold €7.9 billion in aerospace goods, €4.1 billion in pharmaceuticals, and €3.9 billion in beverages to the US. These industries are especially vulnerable to any new trade restrictions, which could further strain France’s economy.
France Faces Growing Budget Deficit
In addition to adjusting its growth forecast, France is dealing with a large budget deficit. The country’s deficit for 2024 is expected to reach 5.8% of GDP. This is nearly double the European Union’s target of 3%. The deficit is projected to amount to €169.6 billion, which is driven by borrowing and weak growth.
The failure of former Prime Minister Michel Barnier’s government to pass key spending reforms last year worsened the country’s fiscal situation. His resignation triggered a political crisis. François Bayrou, his successor, has passed a new budget that includes tax hikes and spending cuts, but the deficit remains a significant issue.
France’s Plan for Deficit Reduction
Despite the challenges, the French government has set a target for reducing the deficit. The goal is to lower the deficit to 5.4% of GDP in 2025 and bring it below 3% by 2029. This will require careful management of public finances and economic growth. High levels of debt and investor concerns also complicate the task.
Political instability in France, caused by snap elections and a fragmented parliament, has also hurt investor confidence. This instability has led to higher long-term borrowing costs. Additionally, many French households are saving more and spending less, which has slowed down economic growth.
EU Budget Rules Add Complexity
France’s economic plans are further complicated by tensions with EU fiscal rules. France and other EU countries have called for a relaxation of these rules, especially to allow more spending on defense. France hopes that loosening EU budget constraints will provide more space for investment in critical areas.
However, some EU member states are concerned about the risks of relaxing these rules. With the current economic climate, it is unclear how the EU will respond to these requests. Rising costs and slow consumer spending continue to weigh heavily on France’s economic outlook.
The Road Ahead for France’s Economy
As France faces both internal and external challenges, its economic future remains uncertain. The government’s revised growth forecast, concerns over US tariffs, and large budget deficits paint a difficult picture. While the government has outlined plans for deficit reduction, political instability and global trade issues make it difficult to predict how successful these plans will be.
The government will need to carefully balance its fiscal policies, focusing on reducing the deficit and stimulating growth. However, France will also need to address the risks posed by global trade tensions and the shifting political landscape within the EU. Only time will tell if France can navigate these challenges and return to a path of sustained economic growth.