Economic activity in France is set to remain subdued in 2024 (0.7% annual growth) after a significant slowdown in the second half of 2023 but is forecast to gain momentum in 2025 (1.3%). Inflation is projected to decrease progressively over the forecast horizon (to 2.5% in 2024 and 2.0% in 2025, after 5.7% in 2023), favoured by the decrease of energy and commodity prices. The public deficit is forecast to fall to 5.3% of GDP in 2024 and to 5.0% in 2025. Public debt is set to increase to almost 114% of GDP by 2025.
| Indicators | 2023 | 2024 | 2025 |
|---|---|---|---|
| GDP growth (%, yoy) | 0.7 | 0.7 | 1.3 |
| Inflation (%, yoy) | 5.7 | 2.5 | 2.0 |
| Unemployment (%) | 7.3 | 7.7 | 7.8 |
| General government balance (% of GDP) | -5.5 | -5.3 | -5.0 |
| Gross public debt (% of GDP) | 110.6 | 112.4 | 113.8 |
| Current account balance (% of GDP) | -2.2 | -1.4 | -1.4 |
Subdued investment set to weigh on growth
In 2024, activity is projected to remain subdued over the first half of the year, with growth in the first quarter estimated at 0.2%. However, the moderation of inflation and the easing of financial conditions expected in the second half of the year are projected to allow for a progressive recovery. Private consumption is expected to be the main driver for growth, as real wages bounce back while investment from both households and corporations is set to slow down. Net exports are set to have a slightly positive contribution to growth as exports gather momentum, notably in transport equipment. The deficit-reducing measures announced by the government for which sufficient detail has been disclosed have been taken into account in this forecast and are also set to weigh on economic growth. Overall, real GDP is forecast to grow by 0.7% in 2024.
In 2025, the economy is projected to keep gaining momentum on the back of looser financial conditions and lower inflation, with GDP expected to grow by 1.3%. This recovery is set to be driven by domestic demand, given the household purchasing power preserved over the previous years, growing real wages, and a still favourable labour market. Net exports are set to have a zero contribution to growth with strong exports growth offset by rising imports as household consumption increases. Investment from both households and corporations is projected to recover progressively. The government has announced significant expenditure savings, but these have not been taken into account in this forecast as insufficient details have been disclosed so far. Once specified and integrated, they could impact projected growth.
Labour market set to stabilise
The labour market remained dynamic in 2023. The unemployment rate reached 7.1% in 2023-Q1, its lowest level since 2008-Q1, while the employment rate reached a record high. The moderate rebound in unemployment throughout 2023 was mostly due to a very dynamic active population. Employment growth is set to slow down in 2024 and 2025 (+0.2% and +0.3% respectively, after +1.1% in 2023), as the effect of apprenticeship contracts on employment growth decreases, hours worked return to their 2019 levels and labour productivity bounces back. The unemployment rate is expected to increase to 7.7% in 2024 and 7.8% in 2025, as a strong growth of active population is expected, resulting mainly from the pension reform of 2023. and the relatively low unemployment rate.
Inflation expected to decrease significantly
After peaking at 7.0% in the first quarter of 2023, HICP inflation decreased gradually to reach 4.2% in the fourth quarter, largely thanks to declining energy and commodity prices. It fell further to 3.0% in 2024-Q1, as the slowdown in consumer prices became widespread, notably given the pass-through of energy and commodity prices to industrial goods. The downward trend in inflation is expected to continue, albeit at a slower pace given that wage increases are still set to feed services inflation. Thus, inflation is expected to average 2.5% in 2024, before slowing down to 2.0% in 2025.
Debt to trend up again on the back of high deficits
The general government deficit rose to 5.5% of GDP in 2023, mainly due to sluggish tax revenues on the back of lacklustre growth and declining inflation. On the other hand, the interest burden on public debt declined by 0.2 pps., to 1.7% of GDP, as lower yields on inflation-indexed bonds compared to 2022 outweighed the effect of higher rates on new issues. Energy-related measures amounted to 0.9% of GDP.
For 2024, the deficit is set to decline to 5.3% of GDP. The subdued economic activity is expected to keep weighing on tax revenues, although these are expected to be more responsive to economic activity after the sizeable revenue shortfalls in 2023. By contrast, the introduction of the exceptional tax on energy producers and financial profits is estimated to increase revenue by 0.1 pps. of GDP. Thus, the revenue-to-GDP ratio would remain broadly stable, at around 52%. In turn, the expenditure-to-GDP ratio is set to decline by 0.5 pps. This drop would be mainly due to the withdrawal of most energy-related measures to 0.2% of GDP, and to 0.3% of GDP expenditure savings adopted in February affecting public consumption, social benefits, subsidies, current and capital transfers. However, these deficit-reducing effects are expected to be partly offset by the projected brisk increase in interest payments on public debt to around 2.0% of GDP, pushed by higher rates on new issues.
For 2025, based on unchanged policies, the general government deficit is expected to decline to 5.0% of GDP. While the revenue ratio is expected to increase only marginally, the expenditure ratio is projected to decline by ½ pps., mainly due to the expected growth rebound. This forecast assumes the almost complete phase-out of energy-related measures. In turn, interest payments on government debt are projected to rise further by 0.3 pps, to 2.3% of GDP.
After declining to 110.6% of GDP in 2023, public debt is estimated to trend up again, reaching around 112.5% in 2024 and almost 114% by 2025. The upward trend is expected to be mainly driven by high primary deficits and rising interest payments, whereas the debt-reducing effect stemming from nominal growth is projected be more moderate than in recent years.